Financial Acct Chpt 1
Terms
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- income statement:
- summary of the revenue and expenses for a specific period of time, ie month or year
- retained earnings statement:
- summary of the changes in the earnings retained in the corporation for a specific period of time, ie month or year
- balance sheet:
- list of the assests, liabilities, & owner's equity as of a specific date, usually at the close of a month or year
- statement of cash flow:
- summary of cash receipts & cash payments for a specific period of time, ie month or year
- account form:
- resemble the basic format of the accounting equation, with assets on the left, liabilities & owner's equity on the right.
- cost concept:
- only the exchange price, or cost of an item
- what is the order of the assest section?
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presents assets in the order that they will be converted into cash or used in operations.
1. cash
2. receivables
3. supplies
4. prepaid ins.
5. etc.
6. then more permanent assets--land,etc - cash flow statement is divided into:
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1.flow from operating activities
(summary of cash receipts/payments from operations. will differ from amt of net income)
2.flow from investing activities
(reports cash transactions for the acquisition & sale of relatively permanent assets)
3.flow from financing activities
(cash transactions related to cash invest. by stockholders, borrowings, and cash dividends - public accountant
- accountant & their staff who provide services on a fee basis
- controller
- chief accountant
- CMA certificate
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Certified Management Accountant
1. college degree
2. 2 years experience
3. successful completion of 2 day exam
4. continuing ed is required for CMA renewal - CIA certificate
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Certified Internal Auditor
review the accounting & operating procedures prescribed by their firms - Financial Accounting is primarily concerned with:
- the recording & reporting of economic data & activities of a business
- Managerial Accounting uses:
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both financial & estimated data to aid management in running day to day operations & in planning future operations.
Gather & report information that is relevant & timely to the decision making needs of management - FASB
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Financial Accounting Standards Board:
authoritative body having the primary responsibility for developing accounting principles - business entity concept:
- limits the economic data in the accounting system to data related directly to the activities of the biz.
- objectivity concept
- requires that the accounting records & reports be based upon objective evidence.
- unit of measure concept
- requires that economic data be recorded in dollars.
- managers
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1.the owner has authorized to operate the business.
2.evaluated primarily on the economic performance
3.sometimes offered a contract called 'profit sharing plan'. Salary is directly tied to how well the biz performs - employees
- provide services to the biz in exchange for a paycheck.
- creditors
- invest resources into a biz by extending a loan. In order for them to recover the investment, they want the biz to do well. They view the biz are their customer
- use the ratio of liabilities to stockholders' equity to analyze the ability of a business to withstand poor business conditions
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1. ratio of liabilites to stockholders' equity is useful in anaylzing the ablity of a business to pay its creditors.
2. the lower the ratio, the better able the business is to withstand poor business conditions and still fully meet its obligations - list the 3 types of businesses that operate for profit
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1. manufacturing
2. merchandising
3. service - characteristics of a manufacturing business
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1. changes basic inputs into products that are sold to individual customers:
GM: cars
Nike: shoes/clothes
Coca-Cola: beverages - characteristics of merchandising businesses
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1. sell products to customers, but rather than making them, they purchase them from other businesses.
2. merchandisers bring products & customers together
Wal-Mart: general merchandise
Lands'End: clothing
Amazon.com: books, music, etc. - characteristics of a service business:
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provide services, not products to customers
Disney: entertainment
Delta Airlines: transportation
Merrill Lynch: financial advice - proprietorship
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one or more individuals
Advantage: ease & low cost of organizing
Disadvantage: financial resources are limited to the individual owner's resources - partnership
- 2 or more
- corporation
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organized under the state & federal statutes as a separate legal entity.
ownership is divided into shares of stock.
the corp issues stock to ind/biz who then become the owners or stock holders - describe the profession of accounting
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1. either public or private
2. specialized fields: financial & managerial
3. other fields: cost accounting, environmental, tax, internationl, not-for-profit, social & accounting systems - GAAP
- generally accepted accounting principles
- state the equation
- assets = liabilities + owner's equity
- explain how business transactions can be stated in terms of the resulting changes in the basic elements of the accounting equation
- the effect of every transaction can be stated in terms of increase or decrease in one or more of the elements, while maintaining equality between them.
- describe the nature of a business
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an organization that takes basic resources (inputs) such as materials & labor, & assemble/process them to provide g/s (outputs)
goal is maximize profits - describe the role of accounting in business
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info system that provides reports to stakeholders about the economic activities & condition of a business.
Accounting is the "language of business" - describe the importance of bus. ethics & the basic principles of proper ethical conduct
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1. moral principles that guide the conduct of individuals.
2. proper ethical behavior implies that a behavior considers the impact of one's actions on society & others. - list 3 sound ethical principles
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1. avoiding small ethical lapses
2. focus on long term reputation
3. be willing to suffer adverse personal consequences for holding to an ethical position