Accounting chapter 1

public accounting.

Accountants and their staff who provide services on a fee basis

financial statements.

After transactions have been recorded and summarized, reports are prepared for users. The accounting reports providing this information

prepaid expenses

Items such as supplies that will be used in the business in the future

Interrelationships among financial statements balance sheet and statement of cash flows

The cash reported on the balance sheet is also reported as the end-of-period cash on the statement of cash flows

Profit

The difference between the amounts received from customers for goods or services provided and the amounts paid for the inputs used to provide the goods or services.

accounting equation.

The equation Assets = Liabilities + Owner's Equity

account payable

The liability created by a purchase on account

Interrelationships among financial statements statement of owners equity and balance sheet

The owner's capital at the end of the period is reported on the statement of owner's equity and is also reported on the balance sheet as owner's capital.

liabilities

The rights of creditors are the debts of the business

account form

a balance sheet lists the assets on the left and the liabilities and owner's equity on the right. It resembles the basic format of the accounting equation.

The Securities and Exchange Commission (SEC

an agency of the U.S. government, has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public.

oGeneral-purpose financial statements

are one type of financial accounting report that is distributed to external user

Limited Liability Company

combines the attributes of a partnership and a corporation. ●10% of business organizations in the U.S. (combined with partnerships). ●Often used as an alternative to a partnership. ●Has tax and legal liability advantages for owners.

Financial Accounting Standards Board (FASB)

has the primary responsibility for developing accounting principles

balance sheet

is a list of the assets, liabilities, and owner's equity as of a specific date.

statement of cash flows

is a summary of the cash receipts and cash payments for a specific period of time. ➢It consists of three sections: (1) operating activities (2) investing activities (3) financing activities

business transaction

is an economic event or condition that directly changes an entity's financial condition or its results of operations.

assets.

oThe resources owned by a business

owner's equity.

oThe rights of the owners

Corporation

organized under state or federal statutes as a separate legal taxable entity. Generates 90% of business revenues. ●20% of the business organizations in the U.S. ●Ownership is divided into shares, called stock. ●Can obtain large amounts of resources by issuing stock. ●Used by large businesses.

statement of owner's equity

reports the changes in the owner's equity for a period of time. oIt is prepared after the income statement because the net income or net loss for the period must be reported in this statement.

Income statement

reports the revenues and expenses for a period of time, based on the matching concept. oThe matching concept is applied by "matching" the expenses incurred during a period with the revenue that those expenses generated. oThe excess of the revenue over the expenses is called net income, net profit, or earnings. If expenses exceed revenue, the excess is a net loss.

unit of measure concept

requires that economic data be recorded in dollars.

objectivity concept

requires that the amounts recorded in the accounting records be based on objective evidence. oOnly the final agreed-upon amount is objective enough to be recorded in the accounting records.

cash flows from operating activities

section reports a summary of cash receipts and cash payments from operations.

Business Entity Concept

the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses.

The process by which accounting provides information to users is as follows:

➢Identify users. ➢Assess users' information needs. ➢Design the accounting information system to meet users' needs. ➢Record economic data about business activities and events. ➢Prepare accounting reports for users

International Accounting Standards Board (IASB).

oMany countries outside the United States use generally accepted accounting principles

private accounting

Accountants employed by a business firm, government, or a not-for-profit organization

Business

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers.

Generally Accepted Accounting Principles

Financial accountants follow generally accepted accounting principles preparing reports. .

Interrelationships among financial statements income statement and statement of owners equity

Net income or net loss reported on the income statement is also reported on the statement of owner's equity and any additional investments by the owner during the year.

Cost Concept

amounts are initially recorded in the accounting records at their cost or purchase price. Aaron Publishers purchased a building on February 20, 2012, for $150,000. Other amounts related to this purchased are shown on the next slide. Price listed by seller on Jan. 1, 2012 $160,000 ●Aaron Publishers' initial offer to buy on Jan. 31, 2012 140,000 ●Purchase price on Feb. 20, 2012 150,000 ●Estimated selling price on Dec. 31, 2014 220,000 ●Assessed value for property taxes, Dec. 31, 2014 190,000 Under the cost concept, Aaron Publishers records the purchase of the building on February 20, 2012, at the purchase price of $150,000. The other amounts listed above have no effect on the accounting records.

Accounting

can be defined as an information system that provides reports to users about the economic activities and condition of a business.

Certified Public Accountants (CPAs).

oPublic accountants who have met a state's education, experience, and examination requirements

Financial Accounting

oThe area of accounting that provides external users with information is called financial accounting. to provide relevant and timely information for the decision-making needs of users outside of the business.

Managerial Accounting

oThe area of accounting that provides internal users with information oManagerial accountants employed by a business are employed in private accounting

Role of Ethics in Accounting and Business

oThe objective of accounting is to provide relevant, timely information for user decision making. oAccountants must behave in an ethical manner so that the information they provide users will be trustworthy and, thus, useful for decision making. oEthics are moral principles that guide the conduct of individuals.

PROPRIETORSHIP

owned by one individual. 70% of business entities in the U.S. are proprietorships. ●They are easy and cheap to organize. ●Resources are limited to those of the owner. ●Used by small businesses.

cash flows from investing activities

section reports the cash transactions for the acquisition and sale of relatively permanent assets.

cash flows from financing activities

section reports the cash transactions related to cash investments by the owner, borrowings, and withdrawals by the owner.

Partnership

similar to a proprietorship except that it is owned by two or more individuals. 10% of business organizations in the U.S. (combined with limited liability companies) are partnerships. ●Combines the skills and resources of more than one person.