January 19 2016 INTRODUCTION TO ACCOUNTING and its use in business decisions What is accounting How do accounting and bookkeeping differ Accounting is the process of identifying collecting analyzing and recording financial information AND communicating that information to decision makers critical part Bookkeeping is just the recording part Bookkeeping is almost unheard of because of the invention of the computer which can take so much data and do a whole lot with it Who are the users of accounting information Insiders company management they need it to make managerial decisions Insider s need more details this is MANAGERIAL ACCT ACCT 210 230 Outsiders can be owners it is people who are outside the day to day decision making Lenders investors and potential investors suppliers government policy makers and tax collectors This is FINANCIAL ACCOUNTING What is business What are two primary objectives of every business entity Business is all the activities that supply society with goods and services January 19 2016 A business is any organization that exists as an economic unit The two primary objectives are SOLVENCY and PROFITABILITY Solvency is can the company pay off its obligations Profitability is can they pay their obligations and still profit from it goes for non profits as well because they need the profit to pay off obligations and still fulfill missions How are businesses organized What are the advantages and disadvantages of each business form Businesses may be organized classified by Form Sole proprietorship partnership corporation Function types of business activity service businesses do something merchandising companies sell products manufacturing businesses make products In the United States who is responsible for developing accounting standards and practices SEC Securities and Exchange Commission created by congress to oversee the financial markets and to try to see that everyone has access to good information SEC created FASB Financial Accounting Standards Board in charge of GAAP Generally Accepted Accounting Principles GAAP January 19 2016 changes and evolves with changes just guidelines which are open to change and judgment What are some of the primary assumptions concepts of accounting GAAP Business entity we want to treat every business unit separate Every entity has its own set of records Money measurement everything is in terms of money Cost historical cost in general I am going to record things at my cost Continuity going concern contrary to any other evidence I am going to record things as nothing is going to happen to the business that this business has a life ahead of it Periodicity time period for purposes of recording I can take events and record them at certain time periods Publicly traded companies must report annually and quarterly to the SEC Identify the four financial statements Describe the purpose and content of each statement January 19 2016 Income Statement AKA statement of operations statement of earnings profit and loss statement o Shows profitability for a period of time o Was the company profitable o Format Revenues Expenses Net Income Statement of Retained earnings or more comprehensive Statement of Shareholders Equity o Link between the income statement and the balance sheet o SRE Beginning balance of retained earnings net income dividends paid to owners Ending balance of retained earnings o Statement of stockholders equity Beginning balance stockholders equity investments by owners net income dividends ending balance stockholders equity Balance Sheet AKA statement of financial position January 19 2016 o Shows a companies financial position at a point in time o Right now today is where we are o Assets things we own Liabilities things we owe Equity owners claim to the assets Two ways we have Equity Investments by the owners Profits o When the company is profitable they can keep all of those profits to keep for themselves expand etc o When it is a corporation any money paid to the owners dividends o So profits dividends retained earnings o We want a car that is 20 000 but don t have the money for it so we borrow money Car asset 15 000 Liability bc we borrowed January 19 2016 You AND the bank Equity both own a stake of it bc you still owe on it Statement of Cash Flows o Period of time o Shows change in cash o All about what made cash change