accounting 1
management accounting
development and interpretation of accounting info intended specifically to aid management
financial accounting
info describing the financial resources, obligations, and activities of an economic entity. used primarily by investors and creditors to help them assess the entities financial position, results of operation, and its ability to generate cash flow
This financial statement
measures the revenues earned by a company during a period of time and the expenses incurred to generate those revenues.
tax accounting
specialized field within the accounting profession. involves both the preparation of income tax rat run and the planning of business activities to minimize income tax burden
what two concerns of investors and creditors are summarized by the term "cash flow prospects?"
return of investment and return on investment
Owners Equity
Owners' equity represents the owners' claims on the assets of the business. The equities of an entity include investments by owners, withdrawals by owners, and earnings retained by the business. Investments by owners and net income increase owners' equity. Payments to owners and net losses decrease owners' equity.
Liabilities
Liabilities represent the claims of creditors on an entity's assets. Liabilities include accounts payable (amounts owed to creditors for assets purchased on account), taxes payable, and wages payable (amounts owed to our employees at the end of the accounting period).
three financial statements used to communicate financial accounting info to interested external parties
balance sheet (statement of finical position), income statement, and statement of cash flow
Examples of internal users of accounting information include
board of directors, CEOs, CFOs, vice-presidents of information services, human resources, and ethics, business unit managers, plant managers, store managers, and line supervisors.
creditos
provided resources to the enterprise in the form of credit but no ownership. banks or individuals who have "loaned" money
The income statement
is often referred to as the statement of operations.
A corporation
A corporation is owned by individuals who normally are not active in the day-to-day operations of that business. For example, you may become an owner of IBM by purchasing shares of stock on the New York Stock Exchange. While you are a part owner, you do not necessarily work for IBM nor are you active in the operations of the company.
A partnership
A partnership is owned by two or more individuals. Some partnerships have several thousand partners.
A proprietorship
A proprietorship is a business owned by just one individual.
characteristics of management accounting info
a means to an end timeliness identify decision maker measure of efficiency and effectiveness oriented towards the future
investors
actually own the reporting enterprise. stockholdings of giant corporations, partners in law firm.
External users of accounting information
are individuals and other enterprises that have a current or potential financial interest in the reporting enterprise, but that are not involved in the day-to-day operations of that enterprise. External users of financial information may include the following: owners, creditors, potential investors, labor unions, governmental agencies, suppliers, customers, trade associations, and the general public.
The most authoritative source of generally accepted accounting principles is (GAAP)
the Financial Accounting Standards Board (FASB
primary financial statements
the balance sheet income statement statement of cash flow
balance sheet
the balance sheet is often referred to as the statement of financial position because it shows the resources of a business and the claims against those resources.
accounting system:
the personnel, procedures, devices and records used by an entity to develop accounting info and communicate this information to decision makers
The balance sheet
The balance sheet is a listing of all asset, liability, and equity account balances that do not appear on the income statement. describes the financial position of a company at a specific point in time. A balance sheet may be prepared monthly, quarterly, or annually depending on the needs of management and external users. The balance sheet is sometimes referred to as the statement of financial position.
There are three basic financial statements that we will study in this course.
these three include the balance sheet, income statement, and statement of cash flows.
an account-
An account is an individual record showing increases and decreases in the balance. Think of a checkbook as an account. In it, cash receipts and disbursements are maintained, in chronological order, as well as the current account balance. The entire group of accounts for a particular business is called the ledger.
creditors and investors have two major concerns about the operations and financial position of any company:
Liquidity, profitability. First, the company must be liquid, that is, it must be able to pay all bills when due. Second, the company must be profitable in the long-run. Unprofitable companies drain the cash position of the company, causing concern on the part of creditors and investors.
These accounting principles support cost as the basis for asset valuation.
The cost principle tells us that accounting information is based upon actual cost incurred. We refer to this as historical cost. The going-concern assumption states that the business entity is assumed to continue operations into the foreseeable future. The objectivity principle states that accounting information must be unbiased and based upon independent evidence. The stable-dollar assumption tells us that we will only record accounting information that can be expressed in monetary units, usually dollars in the United States.
income statement
The income statement shows revenues and expenses.
The statement of cash flows
The statement of cash flows shows how the company receives and spends its cash.