ACCT 230 1st Edition Lecture 3 Outline of Last Lecture I. Overview of SyllabusOutline of Current Lecture II. Accounting Information & Decision Makinga. Accounting as a Measurement/Communication Processb. Financial Accounting Informationc. Careers in AccountingCurrent LectureII. Accounting Information & Decision Makinga. Accounting as a Measurement/Communication Processi. Basic Understanding of Accounting1. Accounting Categoriesa. Managerial Accountingi. Deals with the methods accountants use to provideinformation to an organization’s internal users; thatis, its own managersb. Financial Accounting – focus of 230i. Measures business activities of a company and communicates those measurements to external parties for decision making purposesii. Business activities to measure1. Financing activitiesa. Involves funding from external sources2. Investing activitiesa. Involves purchase and sale of long-term resources3. Operating activitiesa. Involves transactions in primary operations of business4. Basic Accounting equationa. Assets = Liabilities + Stockholder’s Equity5. Profitabilitya. Revenue>Expenses Net income  Dividendsb. Revenue<Expenses  Net loss6. Forms of Business OrganizationsThese 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 personb. Partnership: owned by 2 or more personsc. Corporation: Legally separate from its ownersiii. Communicating through financial statements1. Financial statements are periodic reports published by the company for the purpose of providing information to external users.a. Income Statementi. Financial statement that reports the company’s revenues and expenses over an interval of timeii. Shows whether the company was able to generate enough revenue to cover the expenses of running the businessb. Statement of Stockholders’ Equityi. Financial statement that summarizes the changes instockholders’ equity over an interval of timeii. Consists of common stock + retained earningsc. Balance Sheeti. Financial statement that presents the financial position of the company on a particular dateii. Summarized by the basic accounting equation: Assets = Liabilities + Stockholders’ Equityd. Statement of Cash Flowsi. Financial statement that measures activities involving cash receipts and cash payments over an interval of timeii. Can be classified into three categories1. Operating cash flows2. Investing cash flows3. Financing cash flowsb. Financial Accounting Informationi. Importance of Financial Accounting1. Financial accounting information is essential to making good business decisionsii. Rules of Financial Accounting1. Current Standard Settinga. US – FASB – Financial Accounting Standard Boardi. Governed by Securities and Exchange Commission (SEC)b. Global – International Accounting Standards Board2. Role of Auditorsa. 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 statementsc. Help investors and creditors in their decisions by adding credibility to the financial statements.3. Objectives of Financial Accountinga. Financial accounting should provide information that:i. Is useful to investors and creditors in making decisionsii. Helps predict cash flowiii. Tells about economic resources, claims to resources, and changes in resources and claims4. An ethical foundationa. 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 Accountingi. Careers in Accountingii. Conceptual Framework1. Assumptions for GAAPa. Economic Entity Assumptioni. Identify all economic events with a particular economic entityb. Monetary Unit Assumptioni. Need a unit or scale of measurementc. Periodicity Assumptioni. Provide information of an enterprise at regular timeperiodsd. Going Concern Assumptioni. Business entity will continue to operate