ch.15

Know the accounting equation and how to manipulate it.

Accounting Equation -Assets = Liabilities + Owners' Equity -used by accountants to balance data for the firm's financial transactions at various points in the year

Know the components of a balance sheet.

Balance Sheet -financial statement that supplies detailed information about a firm's assets, liabilities, and owners' equity •Current Asset -the asset that can or will be converted into cash within a year •Liquidity -the ease with which an asset can be converted into cash Current assets include cash and assets that can be converted into cash within a year. The act of converting something into cash is called liquidating. Assets are normally listed in order of liquidity, the ease of converting them into cash. Fixed assets (such as land, buildings, and equipment) have long-term use or value, but as buildings and equipment wear out or become obsolete, their value decreases. Accountants use depreciation to spread the cost of an asset over the years of its useful life. Intangible Asset-nonphysical asset, that has economic value in the form of expected benefit Goodwill-amount paid for an existing business above the value of its other assets •Current Liability-debt that must be paid within one year •Accounts Payable (Payables)-current liability consisting of bills owed to suppliers

What kind of services do CPAs provide?

•Audit -systematic examination of a company's accounting system to determine whether its financial reports reliably represent its operations •Generally Accepted Accounting Principles (GAAP) -accounting guidelines that govern the content and form of financial reports •Tax Services-assistance provided by CPAs for tax preparation and planning •Management Advisory Services-assistance provided by CPA firms in areas such as financial planning, information systems design, and other areas of concern for client firms •Core Competencies For Accounting-the combination of skills, technology, and knowledge that will be necessary for the future CPA

Know the 4 types of accountants.

•Controller (Chief Accounting Officer) -person who manages all of a firm's accounting activities •Certified Public Accountant (CPA) -accountant licensed by the state and offering services to the public •Private Accountant -salaried accountant hired by a business to carry out its day-to-day financial activities •Forensic Accounting -the practice of accounting for legal purposes

Know the 3 financial statements.

•Financial Statement -A report that summarizes a company's financial status to stakeholders and to aid in managerial decision making -There are several types of financial statements: •balance sheet •income statement •statement of cash flows

Know the difference between financial and managerial accounting.

Financial Accounting -field of accounting concerned with external users of a company's financial information Managerial (Management) Accounting-field of accounting that serves internal users of a company's financial information

What is the difference between A/P and A/R

How a transaction is recorded in the General Ledger (GL) depends upon the nature of the transaction. Accounts Payable (AP) is recorded in the AP sub-ledger when an invoice is approved for transactions where the company must pay money to vendors for the purchase services or goods. On the other hand, Accounts Receivable (AR) records any money that a company is owed because of the sale of their goods or services. On the company's balance sheet, accounts payables are recorded as liabilities while receivables are recorded as assets.

How is a profit/loss written?

What Is a Profit and Loss Statement (P&L)? The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The P&L statement is synonymous with the income statement. These records provide information about a company's ability or inability to generate profit by increasing revenue, reducing costs, or both. Some refer to the P&L statement as a statement of profit and loss, income statement, statement of operations, statement of financial results or income, earnings statement or expense statement.

what is full disclosure

guideline that financial statements should not include just numbers but should also furnish management's interpretations and explanations of those numbers

Know the components of an income statement.

•Income Statement (Profit-and-Loss Statement) -financial statement listing a firm's annual revenues and expenses so that a bottom line shows annual profit or loss -revenues, cost of revenues, operating expenses, and net income •Revenues-funds that flow into a business from the sale of goods or services •Cost of Goods Sold-costs of obtaining materials for making the products sold by a firm during the year •Operating Expenses-costs, other than the cost of revenues, incurred in producing a good or service •Gross Profit -preliminary, quick-to-calculate profit figure calculated from the firm's revenues minus its cost of revenues (the direct costs of getting the revenues) •Operating Income-gross profit minus operating expenses •Net Income (Net Profit, Net Earnings)-gross profit minus operating expenses and income taxes

What 2 stipulations have to be in place for revenue recognition?

•Revenue Recognition-formal recording and reporting of revenues at the appropriate time •Full Disclosure- guideline that financial statements should not include just numbers but should also furnish management's interpretations and explanations of those numbers •Statement of Cash Flow -financial statement describing a firm's yearly cash receipts and cash payments

What was developed to restore public trust in accounting practices?

•Sarbanes-Oxley Act of 2002 (Sarbox or Sox) -federal regulations enacted to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations