Lesson One: Definitions Flashcards
Accounting:
An informational and measurement system that identifies, records, and communicates an organization’s business activities.
Identifying:
Select transactions and events.
Ex. Apple’s sale of Iphones, or Peacock’s receipt of subscription money.
Recording:
Input, measure, and log.
Ex. dated logs of transactions measured in dollars.
Communicating:
Prepare, analyze, and interpret.
Ex. reports that we analyze and interpret.
Recordkeeping or Bookkeeping:
Recording of transactions and events.
Financial Accounting:
Focuses on the needs of external users.
Managerial Accounting:
Focuses on the needs of internal users.
External Users:
They do not directly run the organization and have limited access to its accounting information.
Ex. Lenders, shareholders, boards of directors, external (independent) auditors, nonmanagerial employees, nonexecutive employees, labor unions, regulators, voters, government officials, contributors, suppliers, and customers.
General-Purpose Financial Statements:
External users use these to get accounting information.
Lenders or Creditors:
They loan money or other resources to an organization. They use information to assess if an organization will repay its loans.
Ex. banks, savings and loans, and mortgage companies.
Shareholders or Investors:
They are the owners of a corporation. They use accounting reports to decide whether to buy, hold, or sell stock.
Board of Directors:
They oversee organizations and are NOT involved in day-to-day operations. Directors use accounting information to evaluate the performance of executive management.
External (Independent) Auditors:
Examine financial statements to verify that they are prepared according to generally accepted accounting principles.
Nonmanagerial and Nonexecutive Employees and Labor Unions
Use external information to bargain for better wages.
Regulators:
Have legal authority over certain activities of organizations.
Ex. the IRS requires accounting reports for computing taxes.
IRS:
Internal Revenue Service, in charge of computing taxes for every business in the country.
Contributors to Non Profits:
Use information to evaluate the use and impact of donations.
Suppliers:
Use information to analyze a customer before extending credit.
Customers:
Use financial reports to assess the stability of potential suppliers.
Internal Users:
They directly manage the organization.
Ex. purchasing managers, human resource managers, production managers, distribution managers, marketing managers, service managers, research and development managers, and others.
Internal Reports:
Are designed for the unique needs of managerial or executive employees.
Ex. The CEO
Purchasing Manager:
Need to know what, when, and how much to purchase.
Human Resource Managers:
Need info about employee’s payroll, benefits, and performance.
Production Managers:
Use info to monitor costs and ensure quality.
Distribution Managers:
Need reports for timely and accurate delivery of products and services.
Marketing Managers:
Use reports to target consumers, set prices, and monitor consumer needs.
Service Managers:
Use reports to provide better service to customers.
Research and Development Managers:
Use info on projected costs and revenues of innovations.
Private Accounting:
Employees are working for businesses.
Public Accounting:
Involves accounting services like auditing, taxation, and advisory services. They can also work for the government, non profit agencies, including business regulation and enforcement.
Financial Accounting Examples:
Preparation, analysis, external auditing, regulatory, consulting, planning, and criminal investigation.
Managerial Accounting Examples:
General acctg, cost acctg, budgeting, internal auditing, consulting, controller, treasurer, and strategy.
Taxation Accounting Examples:
Preparation, planning, regulatory, investigations, consulting, enforcement, legal services, and estate plans.
Accounting- Related Job Examples:
Lenders, consultants, analysts, traders, directors, underwriters, planners, appraisers, FBI investigators, market researchers, systems designers, merger services, business valuation, forensic accounting, litigation support, and entrepreneurs.
Data Analytics:
A process of analyzing data to identify meaningful relations and trends.
Data Visualization:
A graphical presentation of data to help people understand their significance. This helps people make informed business decisions.
Fraud Triangle:
Three factors that push a person to commit fraud:
1. Opportunity
2. Pressure or Incentive
3. Rationalization or Attitude
Internal Controls:
Procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies.
Auditors:
Verify the effectiveness of internal controls.
GAAP:
Generally accepted accounting principles.
FASB or Financial Accounting Standards Board:
It’s given the task of setting the GAAP.
Conceptual framework includes:
-Objectives: to provide information useful to investors, creditors, and others.
-Qualitative characteristics: to require information that has relevance and faithful representation.
-Elements: to define items in financial statements.
-Recognition and measurement: to set criteria for an item to be recognized as an element; and how to measure it.
They follow the SEC.
SEC or Securities and Exchange Commission:
A U.S. government agency that oversees proper use of GAAP by companies that sell stock and debt to the public.
Audit:
Examines whether financial statements are prepared using the GAAP.
IASB Or International Accounting Standards Board:
Issues the IFRS. Similar to but slightly different from the US GAAP. The FASB and IASB are working to reduce differences between the US GAAP and IFRS.
IFRS or International Financial Reporting Standards:
An international report that identifies preferred accounting practices.
