MGT Chapter 1

Monetary unit assumption

1. The monetary unit a company uses in its accounting report usually depends on the country where it operates 2. A business transaction is expressed in monetary units 3. The monetary unit in the US is the US dollar.

Assets

Land, supplies, Building, cash, accounts receivable

Users of accounting info can be divided into two main groups

internal and external

Other names for equity include

net assets or residual equity

Sole proprietorship

non-incorporated business that is owned by only one person

3 factors that must exist for a person to commit fraud

opportunity, pressure, rationalization

When supplies are purchased on credit, it means

1. Accounts payable will be increased 2. Business will pay for the supplies at a later time 3. A liability has been incurred

When a business provides a service to a customer on credit it means

1. An asset gas been created or increased 2. The business will receive payment for its services at a later time 3. Accounts receivable will be increased

When recording transactions into the accounting equation, which statements are true?

1. At least 2 accounts will be affected when recording a transaction 2. The accounting equation must always remain in balance 3. After recording the transaction, total assets will always equal total liabilities + equity

Identify the importance of accounting

Accounting inför helps users make business and financial decisions. It is a system that identifies, record, and communicates financial info.

Why does a business need accounting?

Accounting records business transactions and communicates financial information

Public and Private accounting

Accounting specialists in this area are highly regarded

Shareholder

An owner of a corporation

Ethics

Beliefs that distinguish right from wrong and accepted standards of good and bad behavior.

Partnership

Business owned by 2 or more people called partners

What events would appear on a balance sheet

Cash, accounts payable, retained earning, equipment, supplies

Generally Accepted Accounting Principals (GAAP)

Concepts and rules that govern financial accounting practices.

Private accounting

Employees work for businesses

Matching principle

Expenses are recorded in the same period they were incurred to generate revenue

Broad opportunity areas of accounting

Financial, managerial, taxation

Revenue recognition principle

Guides businesses as to when they should recognize revenue. Revenue is recorded when earned and the earning process is complete when the services are performed or product is sold.

Bakery Company receives its utility bill of $800 and pays it immediately. Record transaction in accounting equation

Increase expenses, decrease cash

A creditor

Loans money or other resources to a business

The SEC is encouraging the FASB to incorporate individual IFRSstandards into US GAAP. The SEC will continue to:

Maintain authority to prescribe accounting principles and standards for US issuers

Public accounting

Offering tax advice services and auditing services

What is an external user that rely on a business's financial accounting info?

Regulators

Which organization has the legal authority to create Generally Accepted Accounting Principles?

SEC

Asset

Something of value a business owns or has title to

Cost principle

The recorded cost of a purchased item will be based on the actual cost

Business entity assumption

a business's financial records are kept separate from financial records of its owner(s).

an internal user of accounting info

a user who is directly involved in managing and operating an organization. I.e. marketing manager, Human Resources manager, service managers, purchasing managers

If H Hair salon decides to pay cash dividends to their shareholders, what would be decreased?

cash

the equity of a corporation consists of retained earnings and ________ capital.

contributed

Bakery Company is making a partial payment of $70 cash for baking supplies it purchased in a previous month. Record this transaction in the accounting equation

decrease accounts payable, decrease cash

Jackson company purchased office equipment costing $3000 and paid immediately. Record this transaction in the accounting equation

decrease cash, increase equipment

Income statement

describes a business's revenues and expenses over a period of time

order in which a company prepares financial statements

income statement statement of retained earnings balance sheet statement of cash flows

ABS performs $200 of services for a customer but doesn't get paid right away. Record in accounting equation

increase accounts receivable, increase revenue

customer makes a partial payment of $100 on a service for which you have already billed him, you would record this transaction in the accounting equation by

increase cash, decrease accounts receivable

Corporation

1. Earnings are subject to double taxation 2. Corporation is legally separate from its owners 3. May have multiple owners 4. Acts through its managers who are its legal agents

Roles of IASB and IFRS

1. IASB issues IFRS that identify preferred accounting practices 2. Trying to create a single set of accounting standards for global use. 3. IASB issues IFRS to increase comparability of accounting reports between companies in different countries

Advantages of sole proprietorship

1. No special legal requirements to start this kind of business 2. Business's income is added to the income of the owner for tax purposes 3. Businesses income is not subject to a business income tax.

Dodd-Frank Act was passed to

1. Promote accountability and transparency 2. Protect the taxpayer 3. Protect consumers

Advantages of corporation

1. Shareholders elect a board of directors who appoint managers to run the business 2. Owners have limited liability 3. Corporation is responsible for its own acts and own debts.

Why did congress pass SOX

1. To require public companies to apply both accounting oversight and stringent internal controls 2. To help curb financial abuses at companies that issue their stock to the public. 3. to improve the transparency, accountability and truthfulness in reporting transactions

Balance sheet

1. reports financial position of a company at a point in time 2. the statement reports the quality of the accounting equation at any point in time. 3. Reports assets, liabilities and equity at a point in time

Going-concern assumption

A company assumes it will continue operating instead of being closed or sold

Full disclosure principle

A company must report details behind financial statements that would impact users' decisions

Jackson's catering provided $3000 worth of cookies and received immediate payment. Record transaction in accounting equation

increase cash, increase revenue

Supplies costing $500 were purchased on credit. Record transaction in accounting equation

increase supplies, increase accounts payable

What would appear on an income statement (reporting net income or loss)

revenue-expenses service revenue, rent revenue, wages expense, rent expense

equation for net income

revenues-expenses

Entering transactions into an accounting equation

the accounting equation must always remain in balance so that assets always equal the sum of liabilities and equity