Chapter 1 Accounting The Accounting System Financial Accounting Reports periodic financial statements disclosures External Decision Makers stakeholders investors gov Managerial Accounting Reports detailed plans continuous performance reports Internal Decsion Makers run the company CEO manager Business Activities Financing borrowing paying back money to lenders and receiving additional funds from stockholder or paying them dividends Investing buying selling items such as plan and equipment used in production Operating day today process of purchasing raw materials from suppliers manufacturing goods distributing collecting income and paying suppliers Management accounting developing accounting information for internal decision making The 4 Basic Financial Statements Balance sheet reports the amount of assets liabilities stockholder s equity of accounting entity at a point in time snapshot as of December 31 2012 Income statement reports ability to sell goods for more than production and selling cost revenue expenses for a time period Statement of Stockholder s Equity reports payments to investors and amount of income reinvested for future growth changes in stockholder s equity Statement of cash flows reports ability to generate cash and how it was used Basic Accounting Equation Assets Liabilities Stockholder s Equity Assets economic resources cash inventory buildings Liabilities financing from creditors amounts owed to suppliers banks Stockholder s Equity financing from stockholders common stock retained earnings Entity Concept Assets Liabilities Stockholder s Equity Creditor lender of loans that charge interest Dividends cash payments earned to sell company at a higher price CEO CFO responsible for financial statements Audit examination of financial reports to ensure they represent what they claim conform with GAAP Consolidated includes parent US foreign countries Current assets assets that can be converted to cash within 1 year Current liabilities liabilities that must be paid within 1 year Net income goes to stockholders 1 Re invest in business retained earnings increase higher stock prices 2 Pay stockholders dividends taxed Profitable companies don t pay dividends General Accepted Accounting Principles GAAP measurement rules used to develop information in financial statements Securities Exchange Commission SEC given broad powers to determine measurement rules Financial Accounting Standards Board FASB recognized as the body to formulate GAAP International Accounting Standards Board IASB International Financial Reporting Standards IFRS Financial Accounting Reportsperiodic financial statements disclosuresExternal Decision Makersstakeholders investors gov Managerial Accounting Reportsdetailed plans continuous performance reportsInternal Decsion Makersrun the company CEO manager Balance Sheet current liabilities due within 1 yr Liabilities Assets listed in order of liquidity Current assets converted to cash within 1 yr Cash Short term investments Accounts receivable delivery of good service notes payable owed for borrowing Inventory Other current assets Noncurrent assets converted to cash after 1 yrs Property plant and equipment Long term investments Other noncurrent assets Intangibles patents trademarks Total assets unearned revenue bonds payable taxes payable noncurrent liabilities due after 1 yrs long term debt total liabilities accounts payable owed to supplier accrued expenses expenses not yet paid for Stockholder s Equity Common stock Additional paid in capital excess earnings Retained earnings Total stockholder s equity Income Statement Revenues Expenses Net income Revenues generated from sales of goods services Expenses Net sales Free revenue Rent revenue Interest revenue cost of goods selling general administrative expenses interest expense income before taxes Income tax expense Statement of Stockholder s Equity Beginning retained earnings net income dividends Ending retained earnings Contributed Capital Common Stock Additional paid in capital excess earnings Retained Earnings Dividends Statement of Cash Flow Operating cash flows Investing cash flows Financing cash flows Change in cash Cash at beginning of period Cash at end of period cash on balance sheet I F I had cash Oh Chapter 2 The Accounting Cycle process followed by entities to analyze record transaction adjust the records at end of period prepare financial statements prepare records for the next cycle Faithful representation requires that the info be complete neutral free from error Separate entity assumption states that a business activities are accounted separate from owners Continuity assumption states that businesses are assumed to continue in the foreseeable future Stable monetary unit assumption accountants assume that the dollar s purchasing power is stable over time Mixed attribute measurement model measures assets liabilities revenues and expenses as faithfully and relevantly as possible External events exchanges of assets goods services or promises to pay liabilities between parties Ex purchase of machine from supplier sale of merchandise to customer borrowing cash from bank Internal events Events do not involve exchange with others outside the company but rather occur within the company itself Ex using up insurance paid for in advanced using building equipment over several years Account standardized format that organizations use to accumulate the effect of transaction on each financial statement item Transaction analysis Determines the effect on the accounts and the accounting equation Par value a legal amount per share established by the board of directors which represents the minimum amount a stockholder must contribute has no relation to the market price of the stock Common stock account equal to the of shares issued by corporation par value per share Additional paid in capital amount of capital contributed by the stockholders less the par value General journal listing in chronological order of each transaction s effects General ledger record of effects balances of each T account Chart of accounts contains account titles numbers Journal entry shows the effects of a transaction on accounts in debits credits format skip lines between entries Compound entry any journal entry that affects 2 accounts T account tool that summarizes transaction effects for each account represents a ledger account Debit dr left side of T account always written first Credit cr right side of T account indented Assets
View Full Document
Unlocking...