ACCT 209 1nd Edition Lecture 1 Outline of Last Lecture None Outline of Current Lecture I What is accounting II What is a Business A Classifications B Forms C Organization III Generally accepted accounting principles IV Objectives and characteristics of accounting V Recognition and measurement criteria VI Financial statements VII Other elements of 10 k Annual reports Current Lecture INTRODUCTION TO ACCOUNTING AND BUSINESS What is accounting Compare accounting and bookkeeping Accounting is the process of analyzing recording and classifying business transactions and communicating that information to decision makers Bookkeeping is a subset of accounting It is the recording part of accounting Accounting is needed for Business external decision making People outside day to day management Such as owners potential owners lenders and suppliers Also known as Financial Accounting Business internal decision making The Management Much more detail oriented Also known as Financial Accounting Other decision making Government and public policy 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 What is a business An organization that uses resources to provide goods and services to earn a profit Where Profit is the revenue earned less the cost to earn them Businesses may be organized classified by Function types of business activity Service business So something Provide a service Example Delta Airlines Merchandising business Purchase goods for resale Example Target amazon and Wal Mart Manufacturing business Make new goods Example Ford and Dell Businesses can be all three Like McDonalds Form type of business organization Proprietorship Partnership Corporation Limited Liability Company Organizational form Legal status Tax status Characteristics Sole proprietorship Business and owner are same entity Non taxable passthrough entity Easy and inexpensive to organize 1 owner 70 of US businesses Unlimited liability of owner Limited life Partnership 2 or more owners Business and owners are same entity Non taxable passthrough entity Combines skills and resources of more than one person Unlimited liability of owners Limited life Possible disagreement between partners Corporation Business Taxable and owners entity are separate entities Complex may be costly to organize 20 of US businesses generate 90 of US Revenues Can obtain revenue resources by issuing stock Double taxation More paperwork More regulation Have limited Liability Limited liability company Combines elements of partnerships and corporations provides limited liability to owners but usually taxed as pass through entity Organization management of corporation Owners Investors Stockholders shareholders elect the board of directors Board of directors Sets the policy and hires management Management Implements the policy Employees Generally accepted accounting principles GAAP Guidelines that accountants follow in recording and reporting Evolve over time Created by FASB with input from practitioners academics SEC Securities and exchange commission Created in 1930 s by congress after stock market crash Have authority over accounting and financial disclosures for companies whose shares of ownership stock are traded and sold to the public FASB Financial Accounting standards board Primary responsibility for developing account principles Created by SEC IASB IFRS Internal accounting standards board international financial reporting standards PCAOB Public Company Accounting oversight board Created with the Sarbane Oxley Act Primary objective of accounting information Provide information useful for decision making Characteristics of accounting informationRelevant Makes a difference Faithful representation accurate and or estimated Fairly represents what it s meant to represent Recognition what and measurement how much criteria accounting or economic entity concept One specific business unit is the subject of the accounting system and financial statements cost principle Record assets at cost paid to acquire them generally reported at cost going concern concept Assume that business will continue indefinitely monetary unit concept Record transitions in monetary units time period concept Need timely info so report at regular intervals Min Annually Financial statements the end product of financial accounting annual report or 10 K Income Statement Statement of operation earnings or profit and loss Results of operations for specific period of time Statement of Retained earnings or more comprehensive Statement of Shareholders Equity Show changes in equity at period of time Is a bridge between other two Balance Sheet statement of financial position condition Assets liabilities equity at specific point in time Statement of Cash Flows Changes in cash for period of time Other elements of the 10 K Notes to the statements Details descriptions and disclosures Auditor s report Public accounting firm check the system Management discussion and analysis MD A Put spin on it to sound good