Busi 102

External Users of Accounting

Individuals and organizations outside a company who want financial information about the company (investors and creditors)

Data Analytics

Involves analyzing data, often employing both software and statistics, to draw inferences

Interpretation

Involves explaining the uses, meaning, and limitations of reported data

Accounting Information System

The system of collecting and processing transaction data and communicating financial information to decision-makers

Corporation

A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock

Proprietorship

A business owned by one person

Partnership

A business owned by two or more persons associated as partners.

Transactions

A business's economic events recorded by accountants

Economic entity

Can be any organization or unit in society.

Sarbanes-Oxley Act (SOX)

Congress passed this act to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals.

Liabilities

Creditor claims against assets

International Accounting Standards Board (IASB)

Many countries outside the United States have adopted the accounting standards issued by this agency.

Relevance

Means that financial information is capable of making a difference in a decision.

Faithful representation

Means that the numbers and descriptions match what really existed or happened - they are factual.

Financial Accounting

Provides economic and financial information for investors, creditors, and other external users.

Managerial Accounting

Provides internal reports to help users make decisions about their companies (ex: financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year)

Monetary Unit Assumption

Requires that companies include in the accounting records only transaction data that can be expressed in money terms.

Economic Entity Assumption

Requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

Assets

Resources a company owns

Fair Value Principle

States that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a libability)

Generally Accepted Accounting Principles (GAAP)

The accounting profession has developed standards that are generally accepted and universally practiced.

Securities and Exchange Commission (SEC)

The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.

Financial Accounting Standards Board (FASB)

The primary accounting standard-setting body in the United States

Ethics

The standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair.

Investors (owners)

Use accounting information to decide whether to buy, hold, or sell ownership shares of a company

Creditors (suppliers and bankers)

Use accounting information to evaluate the risks of granting credit or lending money

Bookkeeping

Usually involves only the recording of economic events

Historical Cost Principle (or cost principle)

dictates that companies record assets at their cost.

Analysis

involves the use of ratios, percentages, and data visualization to highlight significant financial trends and relationships

Accounting

is an information system that identifies, records, and communicates information that is relevant, reliable, and comparable to help users make better decisions.

Internal Users of Accounting

the managers who plan, organize, and run a business (marketing managers, production supervisors, finance directors, company officers) (Management, Marketing, Human Resources, Finance)