Chapter 8 Flashcards
Accounting
A system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization.
Key users of Accounting information:
- Managers:
- Stockholders
- Employees
- Creditors
- Suppliers
- Government Agencies
Managers
Marketing managers need info on sales in various regions and for various product lines. Financial managers need up to date facts about debt, cash, inventory, and capital.
Stockholders
As owners of the company, most stockholders have keen interest in the company’s financial performance.
Employees
Strong financial performance would help employees make their case for nice pay raises and hefty bonuses. Weak financial performance could mean layoffs
Creditors
Bankers and other lenders will want to assess a firm’s creditworthiness by looking at its accounting statements before granting a loan.
Suppliers
They would like to make sure the company can pay for the order it places.
Government Agencies
Accurate information is required for meeting the requirements for the IRS and other federal and state agencies.
Management Accountants:
Work within an organization, preparing reports and analyzing financial information specific to that organization. Develop budgets, cost management, performance appraisal, and asset management. They often prepare reports for managers and financial statements for owners and other stakeholders. They help a firm improve its performance by identifying areas where mismanagement, waste, and fraud may exist.
Public Accountants:
Provide a broad range of accounting and consulting services to clients on a fee basis. Clients may be individuals, corporations, non-profit orgs or government agencies. Typical services include income tax preparation, external auditing services, and consultation on a variety of accounting issues and problems. They often help new companies design their accounting systems and procedures and mature companies update and improve their accounting systems.
Government Accountants:
Work for a wide variety of government agencies at the local, state, and federal levels. Ensure that government agencies properly manage and account for the public funds they use. Others are employed by government regulatory agencies to audit the finances of private firms or individuals to ensure that government regulations are met and that all appropriate taxes are paid.
Financial Accounting
The branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders.
Generally Accepted accounting principles
A set of accounting standards that is used in the preparation of financial statements.
Financial Accounting Standards Board:
The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.
Also ensures that financial statements are: relevant, reliable, and consistent.
Financial Accounting Standards Board:
The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.
Also ensures that financial statements are: relevant, reliable, consistent and comparable.
What are the 3 Financial Statements:
- Balance Sheet
- Income Statement
- Statement of Cash Flows
What can be found in an Income Statement?
- Assets
- Liabilities
- Owner’s Equity
Assets
- Current Assets = cash and other assets the firm expects to use up or convert into cash within a year
2, Property, plant, and equipment is the other category of assets. Stuff the firm owns.
Current Liabilities
debts that are due within a year of the date on the balance sheet
Long-Term Liabilities
debts that don’t come due until more than a year after the date on the balance sheet.
Owner’s Equity
Claims the owners have against their firm’s assets. For corporations, stocks are the key owners’ equity.
Balance sheets are organized to reflect the accounting equation:
Assets = Liabilities + Owners’ Equity
What can be found in an Income Statement?
- Revenue
- Expenses
- Net-Income
Revenue
Increases in a firm’s assets that result from the sale of goods, provision of services, or other activities intended to earn income.
Accrual-Basis Accounting
Method of accounting that recognizes revenue when it is earned and matches expenses to the revenues they helped produce.
Expenses
Resources that are used up as the result of business operations.
Net-income
The difference between the revenue a firm earns and the expenses it incurs in a given time period.
Statement of cash flows
Identifies a firm’s sources and uses of cash in a given accounting period.
Cash flows from _____:
- Operating Activities
- Investing Activities
- Financing Activities
Operating Activities
- Amount of cash that flowed into the company from the sale of goods or services
- cash from dividends and interest received from ownership of the financial securities of other firms
Investing Activities
Cash received from the sale of fixed assets (such as land and buildings) and financial assets bought as long-term investments.
Financing Activities
Cash received from issuing additional shares of its own stock or from taking out long term loans.
Sarbanes-Oxley Act of 2002
law that banned business relationships that might create conflicts of interest between CPA firms and the companies they audit.
Managerial Accounting
Branch of accounting that provides reports and analysis to managers to help them make informed business decisions.
Operating Budgets
Budgets that communicate an organization’s sales and production goals and the resources needed to achieve these goals.
Financial Budgets
Budgets that focus on the firm’s financial goals and identify the resources needed to achieve these goals.
Master Budgets
A presentation of an organization’s operational and financial budgets that represents the firm’s overall plan of action for a specified time period.
