Lesson 2 Flashcards
the process of recording financial transactions pertaining to a business.
Accounting
The accounting process includes
summarizing, analyzing, and reporting transactions to oversight agencies, regulators, and tax collection entities.
is a necessary function for decision making, cost planning, and measurement of economic performance
Accounting
A _________ can handle basic accounting needs.
Bookkeeper
A ___________ should be utilized for larger or more advanced accounting tasks.
Certified Public Accountant (CPA)
Two important types of accounting for businesses
Managerial Accounting and Cost Accounting.
It helps management teams make business decisions.
Managerial Accounting
It helps business owners decide how much a product should cost.
Cost Accounting
Professional accountants follow a set of standards known as the ________ when preparing financial statements.
Generally Accepted Accounting Principles (GAAP)
It is an important function of strategic planning, external compliance, fundraising, and operations management.
Accounting
Modern accounting as a profession has only been around since the early ___________.
19th century
Hei is considered “The Father of Accounting and Bookkeeping” due to his contributions to the development of accounting as a profession.
Luca Pacioli
Pacioli is an Italian mathematician and a friend of Leonardo da Vinci. On what year did he published a book on the double-entry system of bookkeeping.
1494
When was the modern profession of accounting fully formed and recognized by the Institute of Chartered Accountants in England and Wales?
1880
This institute created many of the systems by which accountants practice today.
Institute of Chartered Accountants in England and Wales.
Types of Accounting
Managerial Accounting, Financial Accounting, Tax Accounting, Cost Accounting
refers to the processes used to generate interim and annual financial statements.
Financial Accounting
an accountant generates monthly or quarterly reports that a business’s management team can use to make decisions about how the business operates.
Managerial Accounting
helps businesses make decisions about costing. Essentially, it considers all of the costs related to producing a product.
Cost Accounting
In __________, money is cast as an economic factor in production,
Cost Accounting
In ____________, money is considered to be a measure of a company’s economic performance.
Financial Accounting
balance compliance with reporting rules while also attempting to minimize a company’s tax liability through thoughtful strategic decision-making. They often oversees the entire tax process of a company:
Tax Accountant
Accounting Profession: ensures compliance with reporting requirements and safeguarding of company assets.
Auditor
monitors internal or external activity to investigate the transactions of an individual or business.
Forensic Accountant
strategically plans the optimal business composition to minimize tax liabilities as well as ensures compliance with tax reporting.
Tax Accountant
analyzes financial transactions to make thoughtful, strategic recommendations often related to the manufacturing of goods.
Managerial Accountant
maintains the “System and Software” in which accounting records are processed and stored.
Information and Technology Analyst/Accountant
oversees the accounting functions of financial reporting, accounts payable, accounts receivable, and procurement.
Controller
is a set of standards and principles designed to improve the comparability and consistency of financial reporting across industries.
GAAP
a method in which every accounting transaction is entered as both a debit and credit in two separate general ledger accounts that will roll up into the balance sheet and income statement.
Double-Entry Accounting
In most other countries, a set of standards governed by the International Accounting Standards Board named the ________ is used.
International Financial Reporting Standards (IFRS)
the process of taking raw transaction information, entering it into an accounting system, and running relevant and accurate financial reports.
Accounting Cycle
Step 1 of the Accounting Cycle
Collect transaction information such as invoices, bank statements, receipts, payment requests, uncashed checks, credit card statements, or other mediums that may contain business transactions.
Step 2 of the Accounting Cycle
Post journal entries to the general ledger for the items in Step 1, reconciling to external documents whenever possible.
Step 3 of the Accounting Cycle
Prepare an unadjusted trial balance to ensure all debits and credits balance and material general ledger accounts look correct.
Step 4 of the Accounting Cycle
Post adjusting journal entries at the end of the period to reflect any changes to be made to the trial balance run in Step 3.
Step 5 of the Accounting Cycle
Prepare the adjusted trial balance to ensure these financial balances are materially correct and reasonable.
Step 6 of the Accounting Cycle
Prepare the financial statements to summarize all transactions for a given reporting period.
rules are outlined by GAAP and IFRS, are required by public companies, and are mainly used by larger companies.
Accrual basis method
stipulates a transaction should be recorded only when cash has exchanged. Because of the simplified manner of accounting, this method is often used by small businesses or entities that are not required to use the accrual method of accounting.
Cash Method
Under the ________ of accounting, a journal entry is recorded when the order is placed.
Accrual method
Under the _________ of accounting, a journal entry is only recorded when cash has been exchanged for inventory. There is no entry when the order is placed; instead, the company enters only one journal entry at the time the inventory is paid for.
Cash method
The difference between the two accounting methods
the treatment of accruals. Under the accrual method of accounting, accruals are required. Under the cash method, accruals are not required and not recorded.
has an entire financial reporting manual outlining reporting requirements of public companies.
The Securities and Exchange Commission
a back-office function where employees may not directly interface with customers, product developers, or manufacturing. However, it plays a key role in the strategic planning, growth, and compliance requirements of a company.
Accounting
Without insight into how a business is performing, it is impossible for a company to make smart financial decisions through forecasting. Without accounting, a company wouldn’t be able to tell which products are its best sellers, how much profit is made in each department, and what overhead costs are holding back profits.
Accounting is necessary for company growth
External investors want confidence that they know what they are investing in. Prior to private funding, investors will usually require financial statements (often audited) to gauge the overall health of a company.
Accounting is necessary for funding
Small companies that may be looking to be acquired often need to present financial statements as part of acquisition or merger efforts. Instead of simply closing a business, a business owner may attempt to “cash-out” of their position and receive compensation for building a company. The basis for valuing a company is to use its accounting records.
Accounting is necessary for owner exit
Through accounting, a company can always know who it has debts to and when those debts are coming due.
Accounting is necessary to make payments
Without accounting, a company may have a hard time keeping track of who owes it money and when that money is to be received.
Accounting is necessary to collect payments
Public companies are required to issue periodic financial statements in compliance with GAAP or IFRS. Without these financial statements, a company may be de-listed from an exchange. Without proper tax accounting compliance, a company may receive fines or penalties.
Accounting may be required
is also called balancing the books, as all of the accounting entries are balanced against each other. If the entries aren’t balanced, the accountant knows there must be a mistake somewhere in the general ledger.
Double-entry accounting
help businesses maintain accurate and timely records of their finances. They are responsible for maintaining records of a company’s daily transactions and compiling those transactions into financial statements such as the balance sheet, income statement, and statement of cash flows.
Accountants
What Skills Are Required for Accounting?
Attention to detail
Ability to think logically
Mathematical skills
Why Is Accounting Important for Investors?
The work performed by accountants is at the heart of modern financial markets. Without accounting, investors would be unable to rely on timely or accurate financial information, and companies’ executives would lack the transparency needed to manage risks or plan projects.
