chapter 1

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What is accounting?
- is an information system that reports on the
- economic activities and financial condition of a business or other organization.
A. It is the language of business

B. It is much broader than bookkeeping
·
1 owner

·
Limited life

·
Unlimited liability

·
Taxes paid by owner on individual return

·
Easy to start

·
Hard to raise capital

Sole proprietorships (characteristics)
·
2 or more owners

·
Limited life

·
Unlimited liability

·
Owner pays taxes

·
Easy to start

·
Easier to raise capital

Partnerships (characteristics)
·
Many owners unlimited life

·
Limited liability

·
Tax are paid by corporation

·
Easy to raise capital

Corporations (characteristics)
Managerial accounting who uses this information?

Internal Management and employes
What is GAAP?
- The measurement rules established by the FASB are
- called generally accepted accounting principles ( GAAP) .
What is the historical cost concept?
- requires that most assets be reported at the
- amount paid for them ( their historical cost) regardless of increases in market
- value.
What is the reliability concept?
- Information is reliable if it can be
- independently verified.
Assets: what is the definition of an asset?
- The resources that a business uses to produce
- earnings
Liabilities: what is the definition of a liability?
- Creditor claims are called liabilities future
- obligations of the enterprise
Equity: what is equity?

Is the investors clams
There are two sources of Owners equity
- · Contributed
- by invested by owners
- · Earned
- by profitable transaction
- ·
- Decreased by distribution
- of profits in the form of dividends
What is the accounting equation?

Assets = Claims
How is equity "earned" through operations?

Is earned through the profits a business shows
What are the four financial statements?
- ·
- The balance sheet
- ·
- The income statement
- ·
- The statement of changes in stockholders’ equity
- ·
- Interrelationships among the statements.
What is on the income statement?
- Matches the expenses with the revenues that
- occur when operating a business.
What is on the statement of changes in equity?
- explains the effects of transactions on
- stockholders’ equity during the accounting period.
What increases equity?

Profits
What decrease equity?

Expenses when expenses exceed earnings
What is on the statement of cash flows?
- explains how a company obtained and used cash
- during the accounting period. Receipts of cash are called cash inflows , and
- payments are cash out-flows. The statement classifies cash receipts ( inflows)
- and payments ( outflows) into
What is articulation?
- Is the interrelationships among the various
- elements of the financial statements.
Transaction Analysis
- Determining the effect of a business event on
- the financial statements
What is a transaction?
- A business event that can be measured and recorded. Is
- a particular kind of event that involves transferring something of value
- between two entities of transactions include acquiring assets from
- owners, borrowing money from creditors, and purchasing or selling goods and
- services.
How is equity earned through operations?
- ·
- Through net Income (revenue – expenses = net income)
Equity
- ·
- Contributed capital/common stock
- ·
- Retained earnings
Revenue:

inflow of assets from providing goods and services
Expense:
- Outflow
- of assets from producing goods and services
What
are the financial Statements?
- Reports
- about the business
- ·
- These reports are distributed to external decision makers
- Four
- financial statements
(Assets= liabilities + owners Equity)
- Balance
- sheet
(revenue – expenses = net income)
- Income
- statement
(Beg balance + investments ( contributions) + net income – Dividends =
end bal
- Statement
- of changes in equity
Inflow – Outflows= Net cash flow
- Statement
- of Cash Flow

Author

Jcritorto

101995

Card Set

chapter 1

Description

Chapter one definitions and concepts

Updated

2011-09-16T00:06:08Z

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