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