ACCT 230 1st Edition Lecture 3 Outline of Last Lecture I Overview of Syllabus Outline of Current Lecture II Accounting Information Decision Making a Accounting as a Measurement Communication Process b Financial Accounting Information c Careers in Accounting Current Lecture II Accounting Information Decision Making a Accounting as a Measurement Communication Process i Basic Understanding of Accounting 1 Accounting Categories a Managerial Accounting i Deals with the methods accountants use to provide information to an organization s internal users that is its own managers b Financial Accounting focus of 230 i Measures business activities of a company and communicates those measurements to external parties for decision making purposes ii Business activities to measure 1 Financing activities a Involves funding from external sources 2 Investing activities a Involves purchase and sale of long term resources 3 Operating activities a Involves transactions in primary operations of business 4 Basic Accounting equation a Assets Liabilities Stockholder s Equity 5 Profitability a Revenue Expenses Net income Dividends b Revenue Expenses Net loss 6 Forms of Business Organizations These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute a Sole proprietorship owned by a single person b Partnership owned by 2 or more persons c Corporation Legally separate from its owners iii Communicating through financial statements 1 Financial statements are periodic reports published by the company for the purpose of providing information to external users a Income Statement i Financial statement that reports the company s revenues and expenses over an interval of time ii Shows whether the company was able to generate enough revenue to cover the expenses of running the business b Statement of Stockholders Equity i Financial statement that summarizes the changes in stockholders equity over an interval of time ii Consists of common stock retained earnings c Balance Sheet i Financial statement that presents the financial position of the company on a particular date ii Summarized by the basic accounting equation Assets Liabilities Stockholders Equity d Statement of Cash Flows i Financial statement that measures activities involving cash receipts and cash payments over an interval of time ii Can be classified into three categories 1 Operating cash flows 2 Investing cash flows 3 Financing cash flows b Financial Accounting Information i Importance of Financial Accounting 1 Financial accounting information is essential to making good business decisions ii Rules of Financial Accounting 1 Current Standard Setting a US FASB Financial Accounting Standard Board i Governed by Securities and Exchange Commission SEC b Global International Accounting Standards Board 2 Role of Auditors a Auditors are trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company s financial statements b Help ensure that management has in fact appropriately applied GAAP in preparing the company s financial statements c Help investors and creditors in their decisions by adding credibility to the financial statements 3 Objectives of Financial Accounting a Financial accounting should provide information that i Is useful to investors and creditors in making decisions ii Helps predict cash flow iii Tells about economic resources claims to resources and changes in resources and claims 4 An ethical foundation a Ethics refers to a code or moral system that provides criteria for evaluating right and wrong behavior 5 Sarbanes Oxley Act SOX a This act provides regulation of auditors and the types of services they furnish to clients increases accountability of corporate executives addresses conflicts of interest for securities analysts and provides stiff criminal penalties for violators c Careers in Accounting i Careers in Accounting ii Conceptual Framework 1 Assumptions for GAAP a Economic Entity Assumption i Identify all economic events with a particular economic entity b Monetary Unit Assumption i Need a unit or scale of measurement c Periodicity Assumption i Provide information of an enterprise at regular time periods d Going Concern Assumption i Business entity will continue to operate indefinitely