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Chapter 1 (Herngren's Financial & Managerial Accounting)

by: Jacquie K

Chapter 1 (Herngren's Financial & Managerial Accounting) HFT 2401 - Financial Accounting for the Hospitality Industry

Jacquie K

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Chapter 1 - Why is accounting important?
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This 6 page Study Guide was uploaded by Jacquie K on Monday February 23, 2015. The Study Guide belongs to HFT 2401 - Financial Accounting for the Hospitality Industry at Florida International University taught by in Spring2015. Since its upload, it has received 89 views.

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Date Created: 02/23/15
Chapter 1 Why is accounting important Accounting The information system that measures business activities processes the information into reports and communicates the results to decision makers Decision Makers The Users of Accounting Information 0 Financial accounting The eld of accounting that focuses on providing information for external decision makers Investors lenders customers and the federal government 0 Managerial accounting The eld of account that focuses on providing information for internal decision makers Company s managers and employees 0 The Accounting Profession 0 Certi ed public accountants CPAs Licensed professional accountants who serve the general public Requirements vary between states Must meet the educational andor experience requirements and pass a qualifying exam 0 Certi ed management accountants CMAs Certi ed professional accountants who work for a single company What are the organizations and rules that govern accounting 0 Governing Organizations 0 Financial Accounting Standards Board FASB The private organization that oversees the creation and governance of accounting standards in the United States 0 Securities and Exchange Commission SEC US governmental agency that oversees the US nancial markets and organizations that set standards like the FASB Generally Accepted Accounting Principles 0 Generally Accepted Accounting Principles GAAP Accounting guidelines currently formulated by the FASB the main US accounting rulebook Faithful representation Information that is faithfully representative is complete neutral and free from e ITO r 0 Economic Entity Assumption 0 Economic Entity Assumption An organization that stands apart as a separate economic unit 0 Distinguishing Characteristics and Organization of a Corporation 0 Stockholder A person who owns stock in a corporation Sole Partnership Corporation Limited Proprietorship Liability Company LLC De nition A business with A business A business A company in a single owner with two or organized which each more owners under state member is and not law that is a only liable for organized as a separate legal his or her own corporation entity actions Number of One called the Two or more One or more One or more owners proprietor called called called partners stockholders members or partners Life of the Terminates at Terminates at Indefinite Inde nite organization owner s choice a partner s or death choice or death Personal Owner is Partners are Stockholders Members are liability of personally personally are not not personally the owners liable liable personally liable for the liable business39s debts Taxation Not separate Partnership is Separate LLC is not taxable entities not taxed taxable entity taxed Instead The owner pays Instead Corporation members pay tax on the partners pay pays tax tax on their proprietorship s tax on their share earnings share of the earnings earnings Type of Small business Professional Large An alternative business organizations multinational to the of physicians businesses partnership attorneys and accountants The Cost Principle 0 Cost Principle A principle that states that acquired assets and services be recorded at their actual cost 0 The item is recorded at the price actually paid and not at the expected cost 0 The Going Concern Assumption 0 Going Concern Assumption Assumes that entity will remain in operation for the foreseeable future 0 The Monetary Unit Assumption 0 Monetary Unit Assumption The assumption that requires the items on the nancial statements to be measured in terms of a monetary unit 0 International Financial Reporting Standards 0 International Accounting Standards Board IASB The private organization that over sees the creation and governance of International Financial Reporting Standards IFRS 0 International Financial Reporting Standards IFRS A set of global accounting guidelines formulated by the International Accounting Standards Board IASB Used or required by more than 120 nations Generally less speci c and based more on principle than US GAAP Leaves more professional judgment 0 Ethics in Accounting and Business 0 Audit An examination f a company s nancial statements and records 0 SarbanesOxley Act Requires companies to review internal control and take responsibility for the accuracy and completeness for their nancial reports What is the accounting equation The basic tool of accounting is the accounting equation It measures the recourses of a business what the business owns or has control of and the claims to those recourses what the business owes to creditor and to the owners The accounting equation is made up of three parts assets liabilities and equity Assets Liabilities Equity Assets Economic recourses that are expected to bene t the business in the future Something the business owns or has control of 0 Cash merchandise inventory furniture and land 0 Accounts Receivable The right to receive cash in the future from customers for goods sold or service preformed Liabilities Debts that are owed to creditors 0 Many liabilities have the word payable in their titles Accounts payable notes payable and salaries payable Accounts payable quotOn accountquot is an accounts payable which is a shortterm liability that will be paid in the future Equity The owners claim to the assets of the business It represents the amount of assets that are left over after the company has paid its liabilities 0 Equity increases with owner contributions and revenues Contributed capital Owner contributions to a corporation Revenues Amounts earned from delivering goods or services to customers 0 Equity decreases with expenses and distributions to owners Expenses The cost of selling goods or services 0 Rent expense salaries expense advertising expense and utilities expense Opposite of revenue Dividend A distribution of a corporation s earnings to stockholders Can be paid in the form of cash stock or other property Opposite of owner contributions Common Stock Represents the basic ownership of a corporation Retained earnings Capital earned by pro table operations of a corporation that is not distributed to stockholders 0 Three types of retained earnings 0 Dividends Decrease o Revenues Increase o Expenses Decrease 0 Net Income The results of operations that occur when total revenues are greater than total expenses 0 Net Loss The result of operations that occurs when total expenses are greater than total revenues How do you analyze a transaction Accounting is based on actual transactions A transaction is any event that affects the nancial position of the business and can be measure reliably How do you prepare a nancial statement Financial statements Business documents that are used to communicate information needed to make business decisions There are four nancial statements prepared These statements are prepared in the ordered listed 1 Income Statement 0 Income Statement Reports the net income or net loss od the business for a speci c period 0 Two types of accounts that are reported on the income statement are revenues and expenses Statement of retained earnings 0 Statement of retained earnings Reports how the company s retained earnings balance changed from the beginning to the end of the period 0 Net income or loss is calculated on the income statement rst and then is transferred to the statement of retained earning Balance Sheet 0 Reports on the assets liabilities and stockholder s equity of the business as of a speci c date Statement of cash ow 0 Statement of cash ow Reports on a business s cash receipt and cash payments for a speci c period 0 Divided into three distinct sections 0 Operating Operating activities involve cash receipts for service provided and cash payments for expenses paid 0 Inves ng Investing activities include the purchase and sale of land and equipment for cash 0 Financing Financing activities includes cash contributions by stockholders and cash dividend paid to the stockholders How do you use nancial statements to evaluate business performance Financial Information Provided and Purpose Statement Income Statement Provides information about pro tability for a particular period for the company Statement of Informs users about how much of the earning were kept and retained earning reinvested in the company Balance sheet Provides valuable information to nancial statement users about economic resources the company has assets as well as debt the company owes liabilities Allow decision makers to determine their opinion about the nancial position of the company Statement of cash Reports on a business s cash receipts and cash payments for a ow period of time Return on Assets 0 Return on Assets Measures how pro tably a company uses its assets Net income divided by average total assets


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