CHAP One ACCT 2301

  1. Accounting
    • identifies, records,
    • and communicates relevant information about a company’s business activities.
  2. Bookkeeping
    • keeping the records of
    • the financial affairs of a business.
  3. Financial Accounting
    • aimed mainly at serving
    • external users by providing them with financial statements
  4. Managerial Accounting
    • serves the
    • decision-making needs of internal users (management).
  5. Ethics
    • code of conduct
    • by which actions are judged as right or wrong, fair or unfair, honest or
    • dishonest.
  6. Goal of Accounting
    • provide useful information for decision-making.
    • For information to be useful, it must be trusted, which demands ethics in
    • Accounting
  7. GAAP (Generally Accepted
    Accounting Principles)
    • rules that
    • specify acceptable accounting practices.
  8. FASB (Financial
    Accounting Standards Board)
    • – independent
    • group of full-time members responsible for setting accounting rules.
  9. SEC (Securities and
    Exchange Commission)
    • – federal agency Congress has charged to set
    • reporting rules for organizations that sell ownership shares to the public
  10. IASB (International
    Accounting Standards Board)
    • create more harmony among accounting rules worldwide by identifying
    • and encouraging the use of the best standards in use.
  11. Principles of Accounting
    • Objectivity principle – accounting
    • information is supported by independent, unbiased evidence.

    • Cost principle – accounting information
    • is based on actual cost.

    • Going-concern principle – accounting
    • information assumes the business will continue operating instead of being
    • closed or sold.

    • Monetary unit principle – assumes that
    • transactions and events can be expressed in money units.

    • Revenue recognition principle – revenue
    • is recognized (recorded) when earned.

    • Matching principle – expenses should be
    • recorded in the same period (month) as the revenues they generated.

    • Business entity principle – a business is
    • accounted for separately from other business entities, including its owner.
  12. Legal forms of business
    • Sole proprietorship (proprietorship) – a
    • business owned by one person.

    • Partnership – a business owned by two or
    • more people, called partners.

    • Corporation – a business that is a
    • separate legal entity under state or federal laws with its owners called
    • shareholders or stockholders.
  13. Types of Business


  14. Sarbanes-Oxley (SOX
    • an act passed by Congress to help curb financial abuses of
    • corporations and to better regulate the Public Accountancy profession which
    • audits corporations.
  15. Accounting Equation

    Assets = Liabilities +
    • Assets – resources owned or controlled by a
    • company.

    Liabilities – creditors’ claims on assets.

    Equity – owner’s claim on assets
  16. There are four things that cause Equity to
    Assets=Liabilities+Owner Capital-Owner Withdrawals+Revenues-Expenses
  17. Transaction Analysis:
    • External transactions – exchanges of
    • value between two entities, which cause changes in the accounting equation.

    • Internal transactions – exchanges within
    • an entity, which can also affect the accounting equation.

    • Events – happenings that affect an
    • entity’s accounting equation and can be reliably measured.
  18. Financial Statements
    • periodic reports (usually monthly) on a company’s financial
    • performance and financial position
  19. Income Statement
    calculates profit (net income/net loss) for month
  20. Statement of Owner’s Equity
    : explains changes in Equity for month
  21. Balance Sheet
    • shows a company’s financial position (status of assets,
    • liabilities, and equity) at a point in time
  22. Statement of Cash Flows
    • : identifies cash inflows (receipts) and cash outflows
    • (payments) for month
  23. Financial Statement Analysis
    • Liquidity and efficiency – ability to
    • meet short-term obligations and to efficiently generate revenues

    • Solvency – ability to generate future
    • revenues and meet long-term obligations

    • Profitability – ability to generate an
    • adequate return on invested capital

    • Market prospects – ability to generate
    • positive market expectations
  24. Return on Assets (ROA) also called Return on
    Investment (ROI)
    • profitability ratio
    • reflecting operating efficiency
Card Set
CHAP One ACCT 2301
CHAP One ACCT 2301