Key Points in Chapter 1: Accounting in Action Flashcards
What is Accounting?
Accounting is an informative system that identifies, records, and communicates the economic events of an organization to an interested user.
The accounting process consists?
identifying, recording, and communication
What is Identifying?
Identifying involves choosing certain events that would be considered evidence of economic activity that is relevant to a particular business organization.
What is Recording?
Recording is the system of keeping chronological diary of events, measured in currency.
What is Communication?
Communication occurs through the preparation and distribution of accounting reports.
What are INTERNAL USERS?
Internal users of account information are managers who plan, organize, and run a business.
B. MANAGERIAL ACCOUNTING provides this information through the internal reports.
Who are External Users?
External users are individuals and organizations outside the company who want economic and financial information about the company.
A. includes investors, creditors, a taxing authorities, regulatory agencies, labor unions and customers.
B. FINACIAL ACCOUNTING provides this information in the company’s financial statement.
What are Ethics?
Ethics is about Right or wrongs, fair or not fair, Honesty or dishonesty.
What are GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)?
A common set of standards to follow.
What is the FINACIAL ACCOUNTING STANDARDS BOARD (FASB)?
The primary accounting standard-setting body in the United States.
What are the SECURITIES and EXCHANGE COMISSION (SEC)?
The agency of the United States government that oversees U.S. financial markets and accounting standard-setting bodies.
What does the HISTORICAL COST PRINCIPLE require?
Requires that companies record assets at their cost.
What is the FAIR VALUE PRINCIPLE?
That assets and liabilities should be reported at fair value.
What is the MONETARY UNIT ASSUMPTION?
Requires that only transaction data that can be expressed in money terms and be included in accounting records.
What is ECONOMIC ENTITIY ASSUMPTION?
Requires that the activities of the entity be kept separate and distant from activities of the owner and all other economic activities.
What are three types of business enterprises?
The three types of enterprises are PROPRIETORSHIP, PARTNERSHIP, AND CORPORATION.
What is Proprietorship? What does it entail?
Proprietorship is a business owned by one person.
A) No legal distinction between the business as an economic entity and the owner.
B) Owner has unlimited liability for the debts of the business.
C) Accounting records keep business transactions separate from personal transactions.
What is a PARTNERSHIP?
A Partnership is a business owned by two or more persons associated as partners.
1) No legal distinctions between the partnership and the partners
2) Partners, individually and jointly, have unlimited liability.
3) Accounting records keep business transactions separate from personal transactions of the partners.
What is a Corporation?
A CORPORATION is a business organized as a separate legal entity under state corporation law with ownership divided into transferable stock.
1) Owners( stockholders) have limited liability.
2) Corporation has unlimited life.
3) Accounting records keep corporate transaction separate from personal transactions of stockholders.
What is the BASIC ACCOUNTING EQUATION?
Assets = Liabilities + Stockholder’s Equity.
What are the key components of the BASIC ACCOUNTING EQUATION?
Assets, Liabilities, and Stockholders’ equity.
In Corporations, stockholders’ equity consist of?
Common stock, Revenues, and Expenses.
What is a COMMON STOCK?
Is the total amount paid in by the stockholders for the shares they purchase.
What are TRANSACTIONS?
Economic events of the business recorded by accountants.
-can be identified by internal or external transactions.
What is an INCOME STATEMENT?
Presents the revenues and expenses.
-Net income or Net loss
What is a RETAINED EARNINGS STATEMENT?
Summarizes the changes in retained earnings for a specific period of time.
What is a BALANCE SHEET?
Reports assets, liabilities, and stockholders’ equity at a specific time.
What is PUBLIC ACCOUNTING?
Provides the services of auditing, taxation, and management consulting.
What is AUDITING?
Involves examining financial statements of companies and expressing an opinion as to the fairness of their presentation.
What is TAXATION?
Includes providing tax advice and planning, preparing tax returns, and representing clients before governmental agencies.
What is PRIVATE ACCOUNTING?
Involves the employment of accountants within the individual companies.
