Chapter 1 Flashcards
Sarbanes-Oxley Act (SOX) of 2002
- Top management to certify accuracy of financial information
- Severe penalties for fraudulent financial activity
- Increased independence of auditors
- Increased responsibility for board of directors
Internal Users
- Finance- is cash sufficient to pay stock holders?
- Human Resources-can we afford raises to our employees?
- Marketing -which product price will maximize an income
- Management-which line of products is most profitable? should we discontinue any?
external users
Investors -Are they earning a satisfactory income?
-how does their size and profitablity compare to other companies?
Creditors -will they be able to pay off their debt when it comes due?
Accounting is…
Accounting is the information system that identifies, records, and communicates economic events to interested users.
Financing activities
Borrowing from creditors
selling shares and stock to investors
Borrowing from creditors:
Liabilities are amounts owed to creditors Note payable (bank loan) Bonds payable (debt securities)
Selling shares of stock to investors
Common stock (total amount paid in by stockholders for the shares they purchased) Dividends (payments to stockholders)
accounting information system
Business Activities:
- Financing activities
- Investing Activities
- Operating Activities
Assets
Land Building Equipment Cash Investments in debt or equity securities of another company
Investing activities:
involve the purchase of resources (assets) needed to operate the business.
Operating activities
revenues, expenses, net loss/gain
comprise the primary activities for which the organization is in business.
Expenses
expenses are the cost of assets consumed or services used in the process of generating revenues.
Liabilities
Accounts payable
