Chapter 1 Flashcards
Accounting
The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.
Accounting system
A process designed to accumulate, classify, and summarize financial data.
Financial statements
Periodic reports of a firm’s financial position or operating results.
Public accountants
Members of firms that perform accounting services for another company.
Audits
Tax accounting
Management advisory services
Certified Public Accountants (CPA’s)
An independent accountant who provides accounting services to the public for a fee.
To become a CPA one must pass Uniform CPA Examination
Auditing
The review of financial statements to assess their fairness and adhere to generally accepted accounting principles.
Tax Accounting
A service that involves tax compliance and tax planning.
Management advisory services
Services designed to help clients improve their information systems or their business performance.
Also referred to as private accounting
Managerial accounting
Accounting work carried on by an accountant employed by a single business in industry.
Governmental accounting
Accounting work performed for a federal state or local governmental unit.
The SEC, IRS, FBI and Homeland Security employ a large # of accountants.
Concept not vocabulary:
Users of financial information
Inside business: owners, managers, employees.
Outside business: tax authorities, suppliers, regulatory agencies, unions, banks, customers, investors and potential investors.
Entity
Anything having its own separate identity such as an individual, a town, a university or a business.
Economic entity
A business or organization whose major purpose is to produce a profit for its owners.
Social Entities
A non profit organization such as a city, a school or a public hospital.
Sole proprietorship
A business entity owned by one person who is legally responsible for the debts and taxes of the business.
Creditors
One to whom money is owed.
Can be people, companies or government agencies.
Separate entity assumption
The concept of keeping a firm’s financial records separate from the owner’s personal records.
“Important! For accounting purposes all forms of business are considered separate entities from their owners. However, the corporation is the only form of business that is a separate legal entity.”
Partnership
A business entity owned by two or more people who are legally responsible for the debts and taxes of the business.
Limited Liability Partnerships LLP’s generally have same characteristics as partnerships.
Corporation
A publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockbrokers are not responsible for the debts or taxes of the business.
Stocks
Certificates that represent ownership of a company.
Stockholders or Shareholders
The owners of a corporation; not responsible for the debts or taxes of a corporation.
Generally Accepted Accounting Principles GAAP
Accounting standards developed and applied by professional accountants.
“Important! The SEC requires all publicly owned companies to follow GAAP and adapt to new standard GAAP practices as they develop.
Statements of Financial Accounting Standards.
Accounting principles established by the FASB (financial accounting standards board).
Discussion memorandum
An explanation of a topic under consideration by the FASB (financial accounting standards board).
Exposure Draft
A proposed solution to a problem being considered by the FASB (financial accounting standards board).
International Accounting
The study of accounting principles used by different countries. 1973 International Accounting Standards Committee was formed, addresses issues caused by lack of uniform accounting principles and recommends ways to improve compatibility and reporting practices.
Auditors report
An independent accountant’s review of a firm’s financial statements.
