January 19, 2016INTRODUCTION TO ACCOUNTING and its use inbusiness 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 decisionsInsider’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, 2016A 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 obligationsProfitability 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 informationSEC created FASB- Financial Accounting Standards Board; in charge of GAAP- Generally Accepted Accounting Principles: GAAPJanuary 19, 2016changes and evolves with changes, just guidelines, which are opento 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 ofit- Periodicity – time period, for purposes of recording I can take events and record them at certain time periods. Publiclytraded companies must report annually, and quarterly to theSEC-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 comprehensiveStatement of Shareholders’ Equity)o Link between the income statement and the balance sheeto SRE= Beginning balance of retained earnings + net income – dividends ($$ paid to owners) = Ending balance of retained earningso 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, 2016o Shows a companies financial position ata point in timeo Right now today is where we areo Assets (things we own) =Liabilities (things we owe) + Equity (owners’ claimto the assets) Two ways we have Equity-Investments by the owners-Profitso 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= dividendso So profits-dividends= retained earningso 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 onit)-Statement of Cash Flowso Period of timeo Shows change in casho All about what made cash