Chapter 1 Flashcards
Accounting
language of business, information system
External users
people outside the company
Financial accounting
provides information for external users
investors
people who put money into the business and are at risk
Creditors
lends money to the company
Government Agencies
(IRS & SEC) Regulate the stock market
Other (external user)
non profit organization, employees, customer
Financial statement
Financial reports to communicate business transactions to outsiders
Internal users
people within the company
Managerial accounting
provides information to it’s users
Management
only ones who have internal info of the company
GAAP
a set of rules accountants use for preparing financial statements (only used in the US)
IFRS
international set of rules and guidelines accountants use for preparing financial statements
Principles and Assumptions of Accounting
all financial statements perpetrated with GAAP rules are based on 8 principles
- Cost Principle (measurement principle)
record of the item at the price that was paid
- Revenue Recognition Principle
Revenue is recognized when earned (when service is done not when price is paid)
- Expense Recognition
a comoany ahouls record all expenses incurred to generate the revenue reported that month
- Full Disclosure
a company needs to report the details behind financial statements that would impact users decisions
- Continuity (Going concern)
assumption that the business will continue operating instead of being closed or sold
- Monetary Unit
we can express transaction and events in monetary units
- Time period
a life a company can be divided into time periods
- Entity assumption
Transactions of the business are accounted separately from the owners transactions
Accounting restraints
materiality And cost benefits, things that prevent companies from making financial statements
Sole proprietorship
Not a legal seperare entity, seperatr accounting entity, limited life
