ACC Chap. 1,2,3

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  1. Accounting
    • 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
  2. 2 types of users of accounting info.
    • 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
  3. Ethics
    • Beliefs that distinguish right from wrong
    • 1. ID ethical concerns
    • 2. Analyze options
    • 3. Make ethical decision
  4. GAAP
    • 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
  5. Revenue Recognition Principle
    • 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
  6. Matching Principle
    A company must record its expenses incurred to generate the revenue reported
  7. Cost Principle
    • Accounting info. is based on actual cost. Actual cost is considered objective
    • What the price says is what something actually costs
  8. Full Disclosure Principle
    • A company is required to report the details behind financial statements that would impact users' decisions
    • Explains how they do things
  9. Going-Concern Assumption
    Reflects assumption that the business will continue operating instead of being closed or sold
  10. Monetary Unit Assumption
    Express transactions and events in money units
  11. Business Entity Assumption
    A business is accounted for separately from other business entities, including its owner (double entry book keeping)
  12. Time Period Assumption
    Presumes that the life of a company can be divided into time periods, such as months or years
  13. Forms of Business
    • 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
  14. Expanded Accounting Equation
    • Assets=Liabilities+Equity
    • What we have=What we owe
    • The accounting equation MUST remain in balance after each transaction
  15. Assets- Account Type
    • Resources owned or controlled by a company
    • Ex. Cash, notes receivable, land, buildings, accounts receivable, vehicles, store supplies
  16. Accounts receivable
    When customers buy something, and receive money in the future
  17. Notes Receivable
    Customers assign promisary notes and there's interest associated with it
  18. Liabilities- Account Type
    • Creditors claim on assets
    • What we oew to someone
    • Debt/loans
    • Usually end in "payable"
  19. Equity- Account Type
    • 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)
  20. Revenue- Account Type
    • 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
  21. Expenses- Account Type
    • Costs of the company
    • Usually ends in "expense"
  22. Income Statement-
    • First financial statement
    • Revenue-expenses=net income (AKA profit)
  23. Statement of Owner's Equity
    • Second financial statement
    • Capital balance=new investments+net incomes (from income statement)-owner withdrawl=ending capital balance
  24. Balance Sheet
    • Third financial statement
    • Assets=Liabilities=equity (ending capital balance)
  25. Financial Statements
    • 1. Income statement
    • 2. Statement of owner's equity
    • 3. Balance sheet
    • 4. Statement of cashflows
  26. Account type order
    • Asset
    • Liabilities
    • Equity
    • Revenue
    • Expense
  27. Financial Statement label order
    • Company
    • Which financial statement
    • Time
    • If more than one thing, make a total
  28. Ledger
    a record containing all accounts used by a company
  29. Prepaid account
    assets that represent prepayments of future expenses
  30. Unearned revenue
    A liability that is settled in the firite when a company delivers its products or services
  31. Owner, Capital
    When an owner incests ina compant, the invested amount is recorded in this account
  32. Owner, withdrawals
    When the owner takes out money from the company for personal use
  33. T account
    Represents a ledger account and is a tool used to understand the effects of one or more transactions
  34. Debit
    • The left side of the account
    • Increases when you have
    • Assets
    • Withdrawals
    • Expenses
  35. Credit
    • The right side of the account
    • Increases when you have:
    • Revenue
    • Capital
    • Liabilities
  36. Double entry accounting
  37. Reequires that each transaction be recorded in at least two accounts
    The sum of debits and credits will equal
  38. Journal entries
    • 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
  39. Trial Balance
    • A list of accounts and their balances at a point in time
    • Must balance
    • Take the totals from the T accounts
  40. Fiscal year
    A year that is consisting of any 12 consecutive months
  41. Natural business year
    The year ends when the sales activities are at their lowest level for the year
Card Set:
ACC Chap. 1,2,3
2011-06-08 01:01:49

Chapter 1
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