1 - Accounting: The Language of Business

Statements of financial accounting standards

- Accounting principles established by the Financial Accounting Standards Board

CPA

- Certified public accountant

Management advisory services

- Involve helping clients improve their information systems or their business performance

Government accounting

- Involves keeping financial records and preparing financial reports of part of the staff of federal, state or local government units (think SEC).

Managerial accounting (aka private accounting)

- Involves working for a single business in industry

Steps to become a CPA

- Obtain a certain number of college accounting credits - demonstrate good personal character - pass the uniform CPA exam - fulfill the experience requirements of the state of practice

Privately owned corporations (closely held corporations)

- Ownership is limited to specific individuals, usually family members - Stocks aren't traded on an exchange

Publicly owned corporations

- Stock is bought and sold on exchanges and over-the-counter markets

Accounting

- The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers and other interested parties.

Public accountants

- Work for public accounting firms (those that provide accounting services for other companies).

Sole proprietorship

- a business entity owned by one person - life of the business ends when owner is no longer able or willing to keep it running - think small businesses

Corporation

- a business entity that's separate from its owners - Very different from sole proprietorships and partnerships - has a legal right to own property and do business in its own name

Limited Liability Partnership (LLP)

- a general partnership that provides some limited liability for all partners - Partners are liable for their own actions or those under their supervision - Partners aren't liable for the actions of another partner

Accounting System

- a process designed to accumulate data about a firm's financial affairs, classify the date in a meaningful way, and summarize it in periodic reports called financial statements.

exposure draft

- a proposed solution to a problem being considered by the Financial Accountiong Standards Board

Discussion memorandum

- an explanation of a topic under consideration by the Financial Accounting Standards Board

Stockholders (shareholders)

- aren't responsible for the debts or taxes of the corporation

3 services public accountants offer

- auditing - tax accounting - management advisory services

Partnerships

- business entities owned by two or more people (law firms, dental practices, accounting firms, etc.)

auditor's report

- contains the auditor's opinion about the fair presentation of the operating results and financial position of the business

tax compliance

- deals with the preperation of tax returns and the audit of those returns

separate entity assumption

- describes the concept of keeping the firm's financial reports separate from the owner's personal financial records

Subchapter S Corporations (aka S corporations)

- entities formed as corporations which meet certain IRA requirements and can thus be treated as a partnership so the corporation pays no income tax - Instead, shareholders record their share of profits, and other tax-related items, on their individual tax returns

Creditors

- individuals, companies or government agencies to whom a business owes money

tax planning

- involves giving advice to clients on how to structure their financial affairs in order to reduce their tax liability

Tax accounting

- involves tax compliance and tax planning

Social entities

- nonprofit organizations (cities, public schools, hospitals, etc.)

Users of financial information

- owners and managers - suppliers - banks - tax authorities (IRS) - regulatory agencies and investors - customers - employees and unions

3 areas accountants usually choose to practice in:

- public accounting - managerial accounting - government accounting

Entity

- recognized as having its own seperate identity - my be an individual, town, university or business

Stock

- represents ownership of a corporation

the 3 major legal forms of business entity

- sole proprietorship - the partnership - the corporation

Generally accepted accounting principles (GAAP)

- standards detailed by the accounting community that the SEC requires all publicly owned companies to follow

Auditing

- the review of financial statements to assess their fairness and adherence to GAAP

international accounting

- the study of accounting principles used by different countries

economic entity

- usually refers to a business or organization whose major purpose is to produces a profit for its owners