Financial Accounting Chapter 1, 2, 3
Retained Earnings=
revenues-expenses-dividends
Six Steps in Measuring External Transactions
1) Use source documents to identify accounted affected by transaction 2) analyze the impact of the transaction on the accounting equation 3) asses if the transaction results in debit or credit 4) prepare trial balance 5) post transaction to T-account 6) Record into journal
Common Stock
A stockholders equity account
Accounting
A system of maintaining records of a company's operations and communicating that information to decision makers.
Liabilities
Amounts owed to creditors
Prepaid expense
An expense paid for in advance in which you will get future benefit. ex. insurance, prepaid rent
Investors
Buy and sell company stock
Dividends
Cash payments to stockholders
Unearned Revenue
Cash provided from customers in one period from goods provided later. Ex. pay for dance lesson, the instructor owes the lesson
Operating cash flows
Cash receipts and cash payments for transactions involving revenues and expenses.
Investing cash flows
Cash transactions for the purchase and sale of investments and productive long term assets.
Financing cash flows
Cash transactions with lenders, such as borrowing money and repaying debt, and with stockholders, such as issuing stock and paying dividends.
Stockholders Equity= (equation)
Common stock + retained earnings
Note Disclosures
Offers additional information either to explain the information presented in the financial statement or to provide information not included in the financial statement.
Stockholders Equity
Owners claim to resources
Financial Statements
Periodic reports published by the company for the purpose of providing information to external users.
Limited Liability
Prevents stockholders from being held personally responsible for the financial obligations of the corporation.
Revenue Recognition
Revenue that is recorded when it is earned.
Management discussion analysis
Section typically includes management's views on significant events, trends, and uncertaintines pertaining to the company's operations and resources
PCAOB
Sets standards for auditors.
SEC (securities and exchange commission)
Sets standards for publicly traded companies
Account
Summarizes the transactions related to a particular item over a period of time
Retained earnings
The cumulative amount of net income earned over the life of the company.
IASB (international accounting standards board)
The global counterpart to FASB
Assets
The resources of a company that are expected to provide benefits to the company for the future.
Supply Expense
What you have actually used
Net Income
Difference between revenue and expenses
FASB
Financial accounting standards board
Statement of cash flows
Financial statement that measure activities involving cash receipts and cash payments over an interval of time
Balance sheet
Financial statement that presents the financial position of the company on a particular date
Statement of stockholders equity
Financial statement that summarizes the changes in stockholders equity over an interval of time
GAAP
Generally accepted accounting principles.
Congress
Grands the authority to set standards
Four primary financial statements.
Income statement, statement of stockholders equity, balance sheet, statement of cash flows
Debit
Increases assets and expenses. Decreases liability or equity
Credit
Increases liability or equity, decreases assets or expenses.
Financial Accounting
Information provided to external users
Managerial Accounting
Information provided to internal users
Creditors
Make decisions related to lending money to the company.
Auditors
Make sure companies apply standards
Change in cash=(equation)
operating cash flows + investing cash flows + financing cash flows
