Exam Accounting One sheet of paper front and back Bookkeeping is mechanical part of accounting Accounting is an information system Measure Process Communicate Users Individuals o Bank statement keeping track of finances o Explore how a company is doing Creditors and investors o Where they will buy stock o Loans Nonprofit organizations o Budget resources Regulatory Bodies o Kent income taxes o IRS Two types of accounting Financial and Managerial Financial accounting how we are keeping score o US GAAP Generally accepted accounting principles Rule book for accounting FASB Financially Accounting standers board o IFRS International financial reporting standards o Black and white o Relevance and faithful Comparability Verifiable Timeliness Understandability o Cost all information has a cost o Financial reporting standards Managerial Accounting o Managers in the company o What they need to give feedback o Not as many rules Business Forms Pg 5 and 6 Proprietorship o Sole Proprietorship One person complete liabilities o Acorn Alley o Arctic Squirrel Partnership o More than one owner o All animal control o G J Floral o Personal liability LLC Limited Liability o Can have one or many owners called members o Does have limited liability o Kent Stage o Off the wagon o Dr Green Bee Corporation o Issues stock survives after partner dies o Own legal identity o Raise large sums of cash o Formed under state law o Standing rock jewelers o Campus book and supply Assumptions and Principles Entity Assumption o Personal Tax is separate from business o Franklin stand deli Example Continuity Assumptions o Does not include bankruptcy o Says a business is growing into the indefinite future Historical Cost Principle o Record purchases at purchase price o Scribbles Stable Monetary Unit Assumption o No Hyperinflation The business records of a sole prop should include the prop personal finances True or False False Standpoint of business not person Historical Cost is a verifiable measure that is relatively free from bias True or False Vacation home in Hawaii and Factory in Detroit what is the assets of the business True The factory in Detroit The Accounting Equation Assets Liabilities Equity Assets Liabilities Net worth Assets Economic resources that are expected to produce benefit into the future House Store business Car Cash Total assets House Business Cash Car Liabilities Debt that is payable to an outsider What we owe Debt Accounts payable and long term debt Equity Insider claims of a business Stockholders equity shareholders equity capital Owner s equity Equity Assets Liabilities What we have invested in the business Retained Earnings Revenues expenses dividends Net Income Revenues expenses o Loss is always is S1 8 a Accounts payable Liability b Common sock Equity c Supplies Asset d Retained Earnings Equity e Land Assets f Prepaid expense Asset g Accounts Receivable Asset Financial Statements h Long term Debt Liability i Merchandise Inventory Asset j Note Payable Loans Liability k Accrued Expenses Payable Liability l Equipment Asset o Income statement statement of operations Net income pg 852 How well did the company perform Reports revenues and expenses Net income and net cost Revenue expenses R E Net Loss o Statement of retained earnings R E net income How has stockholder equity changed during the year pg 854 Begins with retained earnings balance Flows from income statement Reports ending retained earnings balance Portion of net income the company has kept o Balance Sheet pg 853 What is the company s financial position at the end of the year Reports assets liabilities and stockholders equity These accounts only on balance sheet Shows that assets liabilities equity Reports retained earnings which comes from the statement of retained earnings Also called statement of financial position o Statement of cash flow Pg 851 how much cash did the company generate and where did they us it Assets on the balance sheet o Current Expected to be converted to cash within the next business cycle 12 months Short term investments Cash Accounts and notes receivable Prepaid expenses Inventory o Long term Will be longer than 1 yr Include Property plant and equipment o Land o Building o Computers o Equipment Intangibles Long term investments Liabilities on Balance sheet o Current Debts payable in the next 12 months Accounts payable income taxes payable Accrued expenses o Long term Debts payable more than one year from balance sheet date Long term loans Bonds payable Equity on the balance sheet o Stockholders ownership of business assets Common stock Additional paid in capital Retained earnings Statement of cash flow o Operating o Investing o Financing activities Amazon s statement of Cash flow States with Amazon company Second line is the name of the statement Third line is the date or date range 3 sections o Operating activities Net income o Investing activities o Financing activities Income statement Name of the company Name of the statement Date or date range period of time Come up with the net income Balance Sheet Name of company Name of the statement Date only statement with one date Starts with assets o Current assets o Long term assets o Liability and stock holder equity Accounting equation is always in balance Ethical Judgments What is the issue Who are the stakeholders and are the consequences of the decisions Weigh the alternatives Make decisions and be prepared to deal with consequences Chapter 2 Corporations do not have to you the calendar year as their accounting year they can use their fiscal year Once they pick it they stick with it A corporation does not have to pay dividends ever Transaction an event that has a financial impact on a business and can be reliability measured There is always two sides to ever transaction Looking at the side of the business Get give Example Ice cream truck customer gives cash for milkshake o Woody s music gives lessons time for cash Account A record of all the changes in a particular asset liability or stockholders equity during the period Date of every transaction Amount Example Cash Assets economic resources that provide future benefit Current converting 1 o Inventory o Cash o Insurance Long term o Equipment o Starbucks building o Car Vehicle o Land Liabilities Amounts owed to outsiders debts Note payable loan payable Stockholders Equity Accounts Owners claim to assets Stock Shares Common stock Retained Earnings Net incomes Revenues Expenses Dividends Revenues Expenses Example