ACC Chap. 1,2,3

• A system that identifies (selecting transactions and events), records (input, measure, and classify) and communicates (prepare, analyze, and interpret) info about an organization's business activities
• Requires making financial statements and learning how to analyze them

• External users: not involved in running the organization (shareholders, investors, govts, consumer groups)- use financial accounting (making financial statements)
• Internal users: involved in operating the organization (managers, directors, sales staff, budget officers)- uses managerial accounting

• Beliefs that distinguish right from wrong
• 1. ID ethical concerns
• 2. Analyze options
• 3. Make ethical decision

• Generally Accepted Accounting Principles
• Financial accounting is governed by these concepts
• 1. Relevant info ->affects decision of users
• 2. Reliable info.->trusted by users
• 3. Comparable info. -> to contrast organizations

• 1. Recognize revenue when it is earned
• 2. Proceeds need not be in cash
• 3. Measure revenue by cash received+cash value of items received
• Did we perform the service? When exactly we earn the money

A company must record its expenses incurred to generate the revenue reported

• Accounting info. is based on actual cost. Actual cost is considered objective
• What the price says is what something actually costs

• A company is required to report the details behind financial statements that would impact users' decisions
• Explains how they do things

Reflects assumption that the business will continue operating instead of being closed or sold

Express transactions and events in money units

A business is accounted for separately from other business entities, including its owner (double entry book keeping)

Presumes that the life of a company can be divided into time periods, such as months or years

• 1. Sole Propriertorship: business owned by one individual
• 2. Partnership: owned by 2 or more individuals
• 3. Corporation: owned by individuals who are not normally active in the business

• Assets=Liabilities+Equity
• What we have=What we owe
• The accounting equation MUST remain in balance after each transaction

• Resources owned or controlled by a company
• Ex. Cash, notes receivable, land, buildings, accounts receivable, vehicles, store supplies

When customers buy something, and receive money in the future

Customers assign promisary notes and there's interest associated with it

• Creditors claim on assets
• What we oew to someone
• Debt/loans
• Usually end in "payable"

• Owner's claim on assets
• What we owe to the owner-value of the owner's investment
• Involves owner capital (owner's investment) and owner withdrawl (Anytime owner takes money out of business for personal use)

• When we do a service, and we are owed money
• Sales
• Loans given to us to start a business
• Doesn't matter if we got paid

• Costs of the company
• Usually ends in "expense"

• First financial statement
• Revenue-expenses=net income (AKA profit)

• Second financial statement
• Capital balance=new investments+net incomes (from income statement)-owner withdrawl=ending capital balance

• Third financial statement
• Assets=Liabilities=equity (ending capital balance)

• 1. Income statement
• 2. Statement of owner's equity
• 3. Balance sheet
• 4. Statement of cashflows

• Asset
• Liabilities
• Equity
• Revenue
• Expense

• Company
• Which financial statement
• Time
• If more than one thing, make a total

a record containing all accounts used by a company

assets that represent prepayments of future expenses

A liability that is settled in the firite when a company delivers its products or services

When an owner incests ina compant, the invested amount is recorded in this account

When the owner takes out money from the company for personal use

Represents a ledger account and is a tool used to understand the effects of one or more transactions

• The left side of the account
• Increases when you have
• Assets
• Withdrawals
• Expenses

• The right side of the account
• Increases when you have:
• Revenue
• Capital
• Liabilities

The sum of debits and credits will equal

• It gives a complete record of each transaction in one place
• Shows the debit and credit of each transaction- must have at least one of both

• A list of accounts and their balances at a point in time
• Must balance
• Take the totals from the T accounts

A year that is consisting of any 12 consecutive months

The year ends when the sales activities are at their lowest level for the year