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Accounting
Consists of three basic activities --it identifies, records, and communicates the economic events of an organization to intrested users.
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Identifies
As a starting point to the accounting process, a company identifies the economic events relevent to its business.
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Records
Once a company identifies economic events it records those events in order to provide a history of its financial activities .
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Communicates
It is done when the the economic events are identified and reported, it communicates the collected information to interested users by means of accounting reports.
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Bookkeeping
Usually involves only the recording of economic events
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Internal Users
Internal users of accounting information are managers who plan, organize, and run the business.
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Managerial accounting
Provides internal reports to help users make decisions about their companies.
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External Users
Are individuals and organizations outside the company who want financial information about the company
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investors (owners)
Use accounting information to decide whether to buy, hold, or sell ownership shares of the company
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Creditors (such as suppliers and bankers)
Use accounting information to evaluate the risks of granting credit or lending money.
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Financial Accounting
Provides economic and financial information for investors, creditors, and other external users.
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Taxing Authorities
Taxing authorities such as the Internal Revenue Service, want to know whether the company applies with tax laws.
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Regulatory Agencies
like the Securities and Exchange Commission or the Federal Trade Commission, want to know whether the company is operating within prescribed rules.
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Sarbanes-Oxley Act (SOX)
Stops rigged financial records
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Ethics
Honest, or dishonest, fair or not fair
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Generally Accepted Accounting Principles (GAAP)
Common standards that indicate how to report economic events.
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Financial Accounting Standards Board (FASB)
A private organization that establishes generally accepted accounting principles in the United States (GAAP).
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Securities and Exchange Commission (SEC)
A governmental agency that oversees U.S. financial markets and accounting standard-setting bodies.
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International Accounting Standards Board (IASB)
An accounting standard-setting body that issues standards adopted by many countries outside the United States.
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Convergence
The process of reducing the differences between US GAAP and IFRS.
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Relevance
means that financial information is capable of making a difference in a decision.
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Faithful Representation
means that the numbers and descriptions match what really existed or happened-they are factual.
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Historical Cost Principle (or cost principle)
dictates that companies record assets at their cost.
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Fair Value Principle
states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).
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Monetary Unit Assumption
requires that companies include in the accounting records only transaction data that can be expressed in money terns.
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Economic Entity Assumption
requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.
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Proprietorship
A business owned by one person
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Partnership
A business owned by two or more persons associated as partners
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Corporation
A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock
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Assets
resources a business owns
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Liabilities
Claims of those whom the company owes money (creditors)
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Owner's Equity
Claims of owners
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Accounts Payable
Campus Pizza, for instance, purchases of cheese, sausage, flour, and beverages on credit from suppliers are obligations called accounts payable.
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Note Payable
money borrowed to purchase, for example a pizza delivery truck.
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Residual Equity
what owners equity is often referred to
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Investments by owner
are assets the owner puts into the business
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Revenues
gross increase in owner's equity resulting from business activities entered into for the purpose of earning income.
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Drawings
An owner withdrawing cash from the business for personal use.
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Expenses
cost of assets consumed or services used in the process of earning revenue.
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Expanded Accounting Equation
Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues - Expenses
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Basic Accounting Equation
Assets = Liabilities + Owner's Equity
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Transactions (business transactions)
business's economic events recorded by accountants.
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External Transactions
- involve economic events between the company and some outside enterprise
- ex: payment of monthly rent to landlord, and sale of pizzas to customers
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Internal Transactions
- economic events that occur entirely within one company
- ex: use of cooking and cleaning supplies
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Income Statement
revenues and expenses and resulting net income or net loss for a specified period of time
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Owner'S Equity Statement
summarizes the changes in owner's equity for a specific period of time
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Balance Sheet
reports of assets, liabilities, and owner's equity at a specific date
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Statement of Cash Flows
summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time
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Net Income
results when revenues exceed expenses
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Net Loss
occurs when expenses exceed revenues
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Public Accounting
offer expert service to the general public
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Auditing
a CPA examines company financial statements and provides an opinion as to how accurately the financial statements present the company's results and financial position
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Taxation
tax advice and planning, preparing tax returns, and representing clients before governmental agencies such as the IRS
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Managerial Consulting
It ranges from installing basic accounting software or highly complex enterprise resource planning systems, to perform support services for major marketing projects and merger and acquisition activities.
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Private (or managerial) accounting
involved in activities such as cost accounting (finding the cost of producing specific products), budgeting, accounting information system design and support, and tax planning and preparation
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