Accounting 1

double entry bookkeeping

All transactions affect the accounting equation in at least two places. It is from this practice that the double entry bookkeeping system gets its name

Expense

An economic sacrifice a business incurs in the process of generating revenue

Name the four financial statements that are used for businesses to communication information to stakeholders

an income statement, a statement of changes in equity, a balance sheet, and a statement of cash flows.

Information reported in financial statements are organized into ten categories known as elements. Name the 10.

assets, liabilities, equity, contributed capitial, revenue, expenses, distributions, net income, gains, and losses.

Accounting equation

assets= liabilities + common stock + retained earnings

CPA

certified public accountant. Services typically offered by public accountants include audit services, tax services, and consulting services.

Resource owners

control the distribution of resources to conversion agents. Thus resource owners provide resources (inputs) to conversion agents who provide goods and services (outputs) to consumers.

Consulting servinces

cover a wide range of activities that include everything from installing sophisticated computerized accounting systems to providing personal financial advice

Conversion agents (businesses) are given what by investors and creditors?

financial resources (money)

1. source of assets

first, a business can borrow assets from creditors. Usually a business acquires cash from creditors and then uses the cash to purchase the assets it needs to conduct its operations. When a business receives cash from creditors it accepts an obligation to return the cash to the creditors at some future date. In accounting terms, the obligations a business has to its creditors are called liabilities.

Liquidation

if a business ceases to operate, its remaining assets are sold and the sale proceeds are returned to the creditors and investors through a process called liquidation

Dividend

if a business transfers some or all of its earned assets to owners the transfer is called a dividend.

Net loss

if expenses are greater than revenues, the difference is NET LOSS

Net income

if revenues exceed expenses the difference is NET INCOME

Physical resources

in their most primitive form they are natural resources. Physical resources often move through numerous stages of transformation. For example, standing timber may be successively transformed into harvested logs, raw lumber, and finished furniture.

Tax services

include both determining the amount of tax due and tax planning to help companies minimize tax expense.

Labor resources

include both intellectual and physical labor.

Audit services

involve examining a company's accounting records in order to issue an opinion about whether the company's financial statements conform to generally accepted accounting principles. The auditor's opinion adds credibility to the statements, which are prepared by the company's management.

Market

is a group of people or entities organized to exchange items of value. The market for business resources involves 3 distinct participants: consumers, conversion agents, and resource owners.

Transaction

is a particular kind of event that involved transferring something of value between two entities. Examples include acquiring assets from owners, borrowing money from creditors, and purchasing or selling goods and services.

Accounting event

is an economic occurrence that changes an enterprise's assets, liabilities, or stockholder's equity.

Accounting

is an information system that reports on the economic activities and financial condition of a business or other organization.

Managerial accounting

is needed by internal users. Internal users include stakeholders such asmanagers and employees who work within a business

Creditors

lend financial resources to businesses. Instead of a share of the business, creditors expect the businesses to repay borrowed resources plus a specified fee called INTEREST.

Users

many users of accounting information are commonly called stakeholders. Stakeholders include resource providers, financial analysts, brokers, attorneys, government regulators, and new reporters.

Income Statement

matches revenue (benefits) with the expenses (sacrifices) that were incurred to generate the revenue.

Give an example of a conversion agent

middle of page 4

Asset terms

net increases generated from operations are earnings or income. Net decreases cause by operation are called losses. The distribution of assets generated through earnings is called a dividend.

Not-for-profit entitites

organizations that are not motivated by profit

Give an example of financial accounting and managerial accounting.

page 6 where it says Wendy's

Common Terms for added value created in transformation process include...

profit, income, or earnings.

Investors

provide financial resources in exchange for ownership interests in businesses. Owners expect businesses to return to them a share of the business, including a portion of earned income.

CIA

stands for Certified Internal Auditor, it is issued by the Institute of Internal Auditors

CMA

stands for Certified Management Accounting, it is issued by the Institute of Management Accountants.

FASB

stands for Financial Accounting Standards Board. It is privately funded organization with the primary authority for establishing accounting standards in the United States. The measurement rules established by the FASB are called GAAP (generally accepted accounting principles). Companies don't have to follow GAAP when preparing management accounting reports.

Financial Accounting

the accounting information external users need. External users include: stakeholders such as investors, creditors, lawyers, and financial analysts (because they exist outside of and separate from the businesses in which they are interested)

General ledger

the complete collection of a company's accounts

Revenue

the economic benefit a company derives from providing goods and services to its customers

Accounting period

the income statement is a report about the company's operations that occurred over a span of time

Retained earnings

the increase in the business's commitments to its stockholders

Describe the link between conversion agents and stakeholders who provide resources

the link is direct. businesses pay resource providers. Resource providers use accounting information to identify companies with high earnings potential because those companies are more likely to return higher profits, make interest payments, repay debt, pay higher prices, and provide stable, high-paying employment.

Describe the link between conversion agents and other stakeholders.

the link is indirect. Financial analysts, brokers, and attorneys may use accounting information when advising their clients. Government agencies may use accounting information to assess companies compliance with income tax laws and other regulations. Reporters may use accounting information in news reports.

Reporting entities

the people or businesses accountants report

Matching concept

the practice of pairing revenues with expenses on the income statement

2. source of assets

the second source of assets is investors. When a business acquires assets from investors it commits to keep the assets safe and to use the assets in a manner that benefits the investors. The business also grants the investor an ownership interest in the business, thereby allowing the investor (owner) to share in the profits generated by the business. The specific commitments made to the investors are described in certificates called common stock. In accouting terms investors are called stock holders. Further, the business's commitment to the stockholders is called stockholders equity.

3. source of assets

the third source of assets is operations. Businesses use assets in order to produce higher amounts of others assets. For example, Best Buy may sell a TV that costs the company 500 to 600 dollars. The 100 dollar difference between the sales price and the cost of the TV results in an increase in Best Buys total assets. This explains how operations can be a source of assets. Of course operations may also result in a decrease in assets. If Best Buy has to discount the sales price of the TV to 450 dollars in order to sell it the company's total assets decreases 50 dollars.

Conversion agents (businesses)

transform resources such as trees into desirable products such as furniture.

Consumers

use resources

Private sector accountants

usually work for a specific company or nonprofit organization. Private sector accountants perform a wide variety of function for their employers. Their duties include classifying and recording transactions, billing customers and collecting amounts due, ordering merchandise, paying suppliers, preparing and analyzing financial statements, developing budgets, measuring costs, assessing performance, and making decisions.

Accounts

where detailed information about the elements is maintained in records. For example, information regarding the element asses may be organized in separate accounts for cash, equipment, buildings, land, and so forth.

Stewardship

which means that it has a duty to protect and use the assets for the benefit of the owners.