ACC100 chapter 1

sole proprietorship

A business entity owned by one person, who is legally responsible for the debts and taxes of the business

Who is a certified public accountant?

A certified public accountant, or CPA, is an independent accountant who provides accounting services to the public for a fee.

what is accounting?

Accounting provides financial information about a business or a nonprofit organization. Owners, managers, investors, and other interested parties need financial information in order to make decisions. Because accounting is used to communicate financial information, it is often called the "language of business."

generally accepted accounting principles (GAAP)

Accounting standards developed and applied by professional accountants must be followed by publicly owned companies unless they can show that doing so would produce information that is misleading.

What is an auditor's report?

An auditor's report accompanies an independent accountant's audit or review of a firm's financial statements.

Public accounting firms provide services such as:

Auditing Tax accounting Management advisory services

What are financial statements?

Financial statements are periodic reports of a firm's financial position and operating results.

What are generally accepted accounting principles (GAAP)?

Generally accepted accounting principles (GAAP) are accounting standards developed and applied by professional accountants.

What is governmental accounting?

Governmental accounting involves keeping financial records and preparing financial reports for a federal, state, or local governmental unit.

What is managerial accounting?

Managerial accounting includes a wide range of work carried on by an accountant employed by a single business in industry.

Corporation

One or more owners, even thousands Can continue indefinitely; ends only when the business goes bankrupt or when the stockholders vote to liquidate Stockholders are not responsible for the firm's debts; they can lose only the amount they invested

The government agency that has final authority over the financial reporting of publicly owned corporations is the

Securities and Exchange Commission. SEC

What is stock?

Stock is issued in the form of stock certificates, and represents the ownership of the corporation.

Sarbanes-Oxley Act

The Act led to a major change in the regulatory environment. The Act was designed as a regulatory crackdown on corporate fraud and corruption.

the AAA.

The group of accounting educators who offer their opinions about proposed FASB statements, after research has been done to determine the possible effects on financial reporting and the economy, is

What is the separate entity assumption?

The separate entity assumption is the concept of keeping a firm's financial records separate from the owner's personal financial records.

Partnership

Two or more owners Ends when one or more partners withdraw, when a partner dies, or when the partners decide to close the firm Partners are responsible individually and jointly for the firm's debts when the firm is unable to pay

Tax Authorities

Use financial information to determine the tax base for: income taxes, sales taxes, and property taxes

Suppliers

Use financial information to: Assess the firm's ability to pay its bills Set a credit limit for the firm

Banks

Use financial information to: Decide whether to make a loan Determine the terms of the loan

Managerial accounting

also referred to as private accounting, involves working for a single business in industry. Managerial accountants perform a wide range of activities, including: establishing accounting policies, managing the accounting system, preparing financial statements, interpreting financial information, providing financial advice to management, preparing tax forms, performing tax planning services, preparing internal reports for management.

Social entities

are nonprofit organizations, such as cities, public schools, and public hospitals.

separate entity assumption

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

accounting system

designed to accumulate data about a firm's financial affairs, Page 3classify the data in a meaningful way, and summarize it in periodic reports

The Financial Accounting Standards Board is responsible for

developing generally accepted accounting principles.

What does an accountant do?

establishes the records and procedures that make up the accounting system, supervises the operations of the system, interprets the resulting financial information.

Management advisory services

involve helping clients improve their information systems or their business performance.

Governmental accounting

involves keeping financial records and preparing financial reports as part of the staff of federal, state, or local governmental units. Governmental units do not earn profits. However, governmental units receive and pay out huge amounts of money and need procedures for recording and managing this money.

Tax accounting

involves tax compliance and tax planning. Tax compliance deals with the preparation of tax returns and the audit of those returns. Tax planning involves giving advice to clients on how to structure their financial affairs in order to reduce their tax liability.

Auditing

is the review of financial statements to assess their fairness and adherence to generally accepted accounting principles. Accountants who are CPAs perform financial audits.

Sole Proprietorship

one owner Ends when the owner dies, is unable to carry on operations, or decides to close the firm Owner is responsible for the firm's debt when the firm is unable to pay

entity

recognized as having its own separate identity may be an individual, a town, a university, or a business

What are the 3 major legal forms of a business entity?

sole proprietorship Partnership Corporation

Accounting

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

economic entity

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