BUS 101 - accounting intro
Terms in this set (49)
financial accounting - core process
FA focuses primarily on _____ users
FA is a _____ discipline
who are external users?
owners or potential investors
regulatory agencies (IRS and SEC)
managerial accounting - core process
MA focuses primarily on _____ users
MA is a _____ discipline
who are internal users?
primary functions of management
direct or execute
besides to perform their primary functions, what do managers use MA information for?
for purposes of achieving the company's goals and objectives
Which discipline of accounting is our primary interest in BUS 101?
why is FA our primary interest in BUS 101?
source of the basic financial statements for decision making
contains basic rules of accounting
targets external users and stakeholders
how is FA information communicated to its users?
what are the 3 basic financial statements?
1. balance sheet
2. income statement
3. statement of cash flows
where are the 3 basic financial statements contained?
in the annual report to stockholders
What characteristics should financial information have so users will have confidence in the information?
Financial information must be reliable:
Accurate (financials "fairly present")
Consistent (from year-to-year)
Comparable (from company-to-company)
Relevant (to decision making)
Objective (fact not fiction)
what must businesses follow when preparing financial statements?
what does GAAP stand for?
generally accepted accounting principals
who established GAAP
FASB (financial accounting standards board)
SEC (security and exchange commission)
What can a business do to ensure that its financial information is reliable?
Establish Internal Controls
Maintain an internal audit staff
Engage external auditors to conduct an audit
Comply with the Sarbanes-Oxley Act of 2002 (requirement for all publicly traded companies)
what are internal controls?
practices and procedures designed to:
Assure reliability of financial records
Ensure the business is operating effectively and efficiently
Ensure compliance with applicable laws and regulations
who assesses the effectiveness of external controls?
management and external auditors
who must certify the financial statements (with personal liability)
CEO and CFO
What Is a Financial Statement Audit?
Independent CPA (Certified Public Accountant)
Examines the financial statements
Provides reasonable assurance
Financial statements are (or are not) presented fairly in accordance with GAAP
what is the basic accounting equation?
assets = liabilities + owners' equity
in other words, what is the basic accounting equation?
stuff = claims to stuff
what are assets?
Economic resources owned by a business
what to assets do?
provide benefits in the future
examples of assets
cash, accounts receivable, merchandise inventory, supplies, equipment, patents
what are liabilities?
Claims of the creditors to the assets
Debts of the company
Unavoidable and non-contingent
examples of liabilities
accounts payable, notes payable, wages payable
what is owners' equity?
Claims of the owners to the assets
what does owners' equity arise from?
Owners direct investment in the company
Profits that are retained in the company rather than distributed to owners (owners have the rights to the profits)
what is the main purpose of a financial statement audit by a CPA firm?
Verify that financial statements are in accordance with GAAP
what is covered in an income statement?
what is revenue?
amounts earned by providing goods or services
what are expenses?
costs incurred in order to earn the revenue
when is revenue recorded?
when the goods or services are delivered (not when cash is received)
when are expenses recorded?
when incurred (not when cash is paid)
This Revenue and Expense recognition principle is known as _________.
what is included in the statement of cash flows?
what is included in the operating activities section?
Cash receipts and cash payments for general day-to-day operations (revenues, expenses, other related)
what is included in the investing activities section?
Cash receipts and cash payments relating to purchase or sale of long-term assets or investments
what is included in the financing activities section?
Cash receipts from and cash payments to owners and lenders
how are financial statements used?
To make decisions about:
Investing in the business
Making loans or extending credit to the business
Making business investments
Planning, directing, controlling daily operating activities
how do owners, stockholders, potential investors, and creditors use financial information?
to evaluate operations of the firm
to make investment decisions
how does management use financial information?
to plan and control
how do employees and union officials use financial information?
to evaluate credit ratings
how do government agencies, economic planners, and consumer groups use financial information?
to evaluate tax liabilities
to approve new issues of stocks and bonds