intro Flashcards
provides financial information about current operations and financial condition of a business to individuals, agencies, and organizations
purpose of accounting
users of accounting information
owners, managers, creditors, government agencies
system of gathering financial information about a business and reporting this information to users
accounting process
6 major steps of process
- analyzing
- recording
- classifying
- summarizing
- reporting
- interpreting
looking at events that have taken place; thinking about how these events have effected business
analyzing
entering financial information about events into an accounting system; information can be entered manually; most use computer
recording
sorting and grouping similar items together
classifying
bringing various items of information together; determines a result
summarizing
communicating results; communication in form of financial statements
reporting
deciding meaningful and importance of reported information; uses ratios and percentage analysis to explain how pieces of information relate to one another
interpreting
developed by financial account standards board, private standard setting body; provides concepts and guidelines to be followed during accounting process
generally accepted accounting principles
5 steps for adopting a standard
- issue is placed on FASBs agenda
- discussion memoradum is issued
- public hearings are held around country
- exposure draft issued
- final statement of finacnial accouting standard is issued
owned by one person; assumes all risks for business personally; owner makes all business decisions
sole proprietorship
owned by more than one person; parterners assume all risks for business personally; share risks and decision making; partners may disagree about way business should run
partnership
owned by stockholders; usually employ professional managers; owners risks limited to their initial investment; publicly owned corps, shareholders often have very litte influence on business decisions
corporations
record, sort, and file accounting information; specialize in various areas of accounting; require at least 1 year of accounting education
accounting clerks
supervise work of accounting clerks, perform daily accounting work, and summarize account information; small-med sized business may help interpret accounting information; requires 1-2 years of accounting education and some experience as accounting clerk
book keepers
provide accounting, auditing/tax services under direct supervision of accountant; requires 2 year degree/significant accounting/book keeping experience
paraaccountants
design accounting information system and focus on analyzing and interpreting information; enterfield with college degree in accounting. many states require 150 credit hours to sit for CPA exam, many also earning masters degree; can achieve professional status as certified public accountant and work for major accounting firms
accountants
accountants employed in:
public accounting, private managerial, governmental, and not for profit
servies offered to other business by public accountants
auditing, taxation, managment advisory services
reviewing company books to ensure correct policies and practices have been followed
auditing
tax specialists offer advice on tax planning, prepare tax returns and represents clients before governmental agencies
taxation
offer advice to other business on a wide variety of managerial issues
management advisory services
individual, association/organization that engages in economic activities and control specific economic resources
business entity
itmes owned by business that will provide future benefits
assets
amount of money owed to business by customers as result of making sales “on account” “on credit”
accounts receivable
itmes owed, probable future outflow of assets as result of past transactions/events; debts/obligations of business that can be paid with cash,goods/services
liabilities
unwritten promise to pay supplier for assets purchased/services rendered; referred to making a purchase “on account”
accounts payable
written promises to pay suppliers/lenders specified sums of money at definite future time
notes payable
amount by which business assets exceed liabilities; net worth; capital
owners equity
economic event that has a direct impact on business; usually requires exchange with an outside entity; measured in dollars; affect the accounting equation through specific accounts
business transactions
separate record used to summarize changes in each asset, liability and owners equity of a business
account
provide a description of each type of account
account title
3 questions
- what happened
- which accounts are affected
- how is accounting equation affected
increase in asset is offeset by an increase in owners equity
investment by owner
increase in asset is offset by decrease in another asset
purchase of asset for cash
increase in asset is offset by increase in liability
purchase of asset on account
decrease in asset is offset by decrease in a liability
payment on loan
decrease owners equity
expenses; drawing
increase owners equity
revenues; investments
amount business charges customers for products sold/services performed; increases both assets and owners equity
revenues
represents decrease in assets/increase in liabilities as result of efforts made to produce revenue; always decreases owners equity
expenses
revenue greater than expenses
net income
expenses greater than revenue
net loss
concept that income determination can be made on a periodic basis
accounting period concept
accounting period of 12 months
fiscal year
owner taking cash/other assets from business for personal use; reduces owners equity and assets
withdrawals
reports profitability of business operations for specific period of time; revenues and expenses; profit and loss statement, operating statement
income statement
beginning capital, net income/loss, withdrawals, ending capital; reports activity that affected owners equity for specific period of time; uses net income from income statement
statement of owners equity
confimrs accounting equation remained in balance; statement of financial position; statement of financial condition; reports assets, liabilities, and owners equity on specific date, not period of time
balance sheet
identify accounts,classifying accounts, determine increase/decrease, enter transaction and verify balance
processing
rev.-expense=net income
income statement
beg. cap.+investments+net income-withdrawals=ending cap.
statement of owners equity
assets=liabilities+owners equity
balance sheet
