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49 terms

Accounting Chapter 01 Concepts

STUDY
PLAY
business
organization that converts inputs to outputs
inputs of a business
basic resources, e.g. materials and labor
outputs of a business
goods, services
three types of profit businesses
service, merchandising, manufacturing
role of accounting in business
provide info for users (e.g. for manager to use in operating business, for users who want to know about the economic performance of the business)
accounting as an info system - process
1) identify users, 2) assess their info needs, 3) design accounting system to meet their needs, 4) record economic data about business activities and events, 5) prepare accounting reports for users
internal users of accounting info
managers, employees
managerial accounting
area of accounting that provides internal users with info
private accounting
managerial accountants employed by a business
external users of accounting info
investors, creditors, customers, government
financial accounting
area of accounting that provides external users with info
generally accepted accounting principles
guidelines for preparing financial statements
Financial Accounting Standards Board
has primary responsibility for developing accounting standards
Securities and Exchange Commission
regulates public companies, accepts FASB principles
International Accounting Standards Board
accounting standards outside of United States
business entity concept
accounting data is based on the business transactions only, not transactions of owner, creditors, etc.
types of business entities (ownership)
proprietorship, partnership, corporation, limited liability corporation
cost concept
recorded amount = purchase price
objectivity concept
recorded amount based on objective evidence
unit of measure concept
recorded amount = $$
accounting equation
A = L + E
accounting equation: A
assets; stuff the business owns (cash, land, buildings, equipment, etc)
accounting equation: L
liabilities; rights of creditors/debts of business
accounting equation: E
owner's equity; A-L, rights of owners
business transaction
event or condition that changes financial condition of business
transaction: owner deposits money into business bank account
+A (cash), +E (owner, capital)
transaction: business bought land
+A (land), -A (cash)
transaction: business bought supplies, agreed to pay supplier in future"
+A (supplies), +L (accounts payable)
transaction: business received cash for providing services
+A (cash), +E (fees earned)
some types of revenue
fees earned, sales, rent revenue, interest revenue
revenue from providing services
fees earned
revenues from selling merchandise
sales
transaction: business paid expenses
-A (cash), -E (expenses: wages expense, rent expense, utilities expense, miscellaneous expense, etc.)
transaction: business paid creditors on account
-A (cash), -L (accounts payable)
transaction: business determines cost of supplies
-A (supplies), -E (supplies expense)
transaction: owner withdraws cash
-A (cash), -E (owner, drawing)
transactions affected owner's equity
owner's investments (+), owner's withdrawals (-), revenues (+), expenses (-)
net income/loss
revenues - expenses
types of financial statements
income statement, statement of owner's equity, balance sheet, statement of cash flows
income statement
summary of revenue/expenses for specific period
statement of owner's equity
summary of OE changes for a specific period
balance sheet
list of A, L, and E as of a specific date
statement of cash flows
not focused on in this class, summary of cash receipts/payments for specific period
financial statements are identified by ...
name of business, title of statement, date/time period
matching concept
a periods expenses are matched to revenues
account form
appears on balance sheet, resembles accounting equation
order of assets on balance sheet
order they will be converted into cash; cash, receivables, supplies, prepaid insurance ... land, buildings, equipment
three sections of statement of cash flows
operating activities, investing activities, financing activities
financial statement interrelationships
IS --net income--> OE --owner's capital--> Bal --cash--> CF