Accounting The recording classifying summarizing and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions Usually group sales transactions together and all purchases together Accounting system The method we use to record and summarize accounting data into reports Accounting Disciplines concerned with costs of production marketing and other functions preparing budgets planning checking whether or not units are staying within the budgets controlling cid 127 Managerial accounting Accounting used to provide information and analyses to managers inside the organization to assist in decision making Certified management accountant CMA A professional accountant who has met certain educational and experience requirements passed a qualifying dam and been certified by the Certified Management Accountants Financial accounting Accounting information and analyses prepared for people outside the organization Annual report A yearly statement of the financial condition progress and expectations of an organization Private accountant An accountant who works for a single firm government agency or nonprofit organization Public accountant An accountant who provides accounting services to individuals or businesses on a fee basis Certified Public Accountant CPA An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants AICPA Board Sarbox legislation created nwe government reporting standards for publicly traded companies created the Public Company Accounting Oversight Auditing The job of reviewing and evaluation the information used to prepare a company s financial statements Independent audit An evaluation and unbiased opinion about the accuracy of a company s financial statements Certified Internal Auditor CIA An accountant who has a bachelor s degree and two years of experience in internal auditing and passed an exam administered by the Institute of Internal Auditors Tax Accounting An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies cid 127 Government and Not for Profit Accounting Accounting system for organizations whose purpose is not generating a profit but serving ratepayers taxpayers and others according to a duly approved budget The Accounting Cycle A 6 step procedure that results in the preparation and analysis of the major financial statements Bookkeeping The recording of business transactions 1 Analyze source documents sales slips travel records etc 2 Record transactions in journals 3 Transfer post journal entries to ledger 4 Take a trial balance 6 Analyze financial statements 5 Prepare financial statements Balance sheet Income statement Statement of cash flows journal The record book or commuter program where accounting data are first entered Double entry bookkeeping The practice of writing every business transaction in two places Ledger A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place Trial balance A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced Understanding Key Financial Statements Financial statement A summary of all the transactions that have occurred over a particular period Key financial statements Balance sheet Reports the firm s financial condition on a specific date Income statement summarizes revenues cost of goods and expenses including taxes for a specific period and highlights the total profit or loss the firm experience during that period Statement of cash flows provides a summary of money coming into an going out of the firm It tracks a company s cash receipts and cash payments Fundamental accounting equation Assets Liabilities Owners equity net worth this is the basis for the balance sheet Balance sheet Financial statement that reports a firm s financial condition at a specific time and is composed of three major accounts assets liabilities and owners equity Classifying assets assets economic resources things of value owned by a firm accountants list assets on the firm s balance sheet in order of their liquidity The ease with which an asset can be converted into cash 1 Current assets Items that can or will be converted into cash within one year They include cash accounts receivable and inventory 2 Fixed assets long term assets that are relatively permanent such as land buildings and equipment On the balance sheet also referred to as property plant and equipment Intangible assets long term assets that have no physical for but do have value i e patents trademarks copyrights and goodwill Assets liability net worth Goodwill when assets liability net worth 1 Goodwill may be why assets are valued more not traditional assets Liabilities and Owner Equity Accounts cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 Liabilities what the business owes to others debts Common liability accounts recorded on a balance sheet Accounts payable Current liabilities are bills the company owes to others for merchandise or services purchased on credit but not yet paid for Notes payable Short term or long term liabilities that a business promises to repay by a certain date Bonds payable Long term liabilities that represent money let to the firm that must be paid back cid 127 Owners equity The amount of the business that belongs to the owners minus any liabilities owed by the business retained earnings The accumulated earning from a firm s profitable operations that were reinvested in the business and not paid out to stockholders in dividends Income statement The financial statement that shows a firm s profit after costs expenses and taxes it summarizes all of the resources that have come into the firm revenue all the resources that have left the firm expenses and the resulting net income or net loss Revenue Cost of goods sold cid 127 Gross profit gross margin operating expenses Net income before taxes taxes Net income or net loss cost of goods sold or cost of goods manufactured A measure of the cost of merchandise sold or cost of
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