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Accounting 200 Chapter 1 Notes

by: Saxton Long

Accounting 200 Chapter 1 Notes ACC 200-004

Saxton Long
GPA 2.95
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About this Document

These are the notes over Chapter 1
Accounting 200
Dr. mayfield
Class Notes
Accounting 200




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This 4 page Class Notes was uploaded by Saxton Long on Thursday February 4, 2016. The Class Notes belongs to ACC 200-004 at University of Tennessee - Knoxville taught by Dr. mayfield in Spring 2016. Since its upload, it has received 72 views. For similar materials see Accounting 200 in Accounting at University of Tennessee - Knoxville.


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Date Created: 02/04/16
Accounting 200: Foundations of Accounting Instructor: Vicki L. Mayfield Chapter 1 Notes 1. What is accounting?  Accounting is the “language of business”  An organization system for a company’s financial info 2. Stakeholders  People, businesses or governments that have an interest in business  External stakeholders a. Capital Market stakeholders- Lend and invest money in the business (Owners or creditors) b. Product/Service Market stakeholders- Buy/sell goods from the business (Customers and suppliers) c. Government stakeholders- Collect taxes and regulate business activities (Federal, state, and local)  Internal stakeholders a. Business Managers and Employers- Operate the business to earn profit (Managers and any employees) 3. Accounting is the language of business  Evaluates the company’s current health and future prospects (Internal and External)  Financial accounting (Past)- Provides history of external stakeholders about: a. How the financial conditions change during a period of time using three statements (Income Statement, Statement of Retained Earnings, and Statement of Cash Flow) b. How the financial conditions are at a particular point in time using one financial statement (Balance Sheet)  Managerial accounting (future)- gives forward-focused information to internal stakeholders so they can make better decisions in the future a. They do this by projecting financial statements and daily progress reports 4. Accounts and financial statements  There are 6 types of accounts: a. Assets- Company’s resources b. Liabilities- Owed to creditors c. Equity- Owners claims on the assets d. Revenues- Sales and goods fees for income e. Expenses- Expenditures to earn revenue f. Dividends- Portion of profits paid to the owners  Income Statements (Known as flow statement) a. Revenues (-) Expenses (=) Net income  Statement of Retained Earnings (Referred as RE and also a flow statement) a. Beginning RE (+) Net income (-) Dividends (=) Ending RE  Balance Sheet- (Known as a position statement) a. Assets (=) Liabilities (+) Equity b. Reports the financial condition of the company on the last day of each accounting period, which is usually December 31 st of that year c. It is also the final result of the integrated financial statements  Statements of Cash Flow (Known as flow statement) a. It reconciles the cash account using 3 categories - Operating Activities- The day to day operations A. Cash Received (-) Cash Paid (=) Net Cash from operating - Investing Activities- The money made from investments like land, etc. A. Cash Received (-) Cash Paid (=) Net Cash from investing - Financing Activities- Notes payable of issuing of bonds A. Cash Received (-) Cash Paid (=) Net Cash from financing b. All of these categories equal the change in Cash for the period c. 5. Business Types  A business is an organization that sells goods/services to customers  Service Business- Provides services to customers (Doctors, lawyers, hair stylist)  Merchandise Business- Buy finished goods from manufacturers and sells them to customers (Walmart or Kroger)  Manufacturing Business- Make the raw materials into finished goods to sale to customers (Toyota, Chevrolet, Kimberly Clark) 6. Business Forms  Proprietorship- Owned by one person - Easy and inexpensive - One level of taxation - Not a separate entity - Limited to cash the owner can contribute - No limited liability  Partnership- Owned by one or more partners - Fairy easy and inexpensive - One level of taxation - Separate legal entity - Raise more money than proprietorships - No limited liability  Corporation- Owned by one or more stockholders - Relatively difficult and expensive - Two levels of taxation - Separate legal entity - Can raise large amounts by issuing stock - Limited liability  Limited Liability Company (LLC)- Owned by more than one member - Fairly easy and inexpensive - One level of taxation - Separate legal entity - Can raise more than proprietorships but it has trouble if the company gets too large too quick - Limited liability 7. How do businesses make a profit?  Revenues (-) Expenses (=) Net Income  Business strategy - Low-Cost emphasis- Producing good/service at a lower cost than competitors (Walmart, Kia) - Premium-Price emphasis- Producing good/service that is of great or unique quality that customers are willing to pay full price for(Audi, BMW, Bentley) 8. Business Activities  Financing- The business acquires cash to organize and operate - Debt Financing- Cash is borrowed, creating an asset and an equal liability - Equity Financing- Cash is made by selling stock or ownership of the company, creating an asset and an equal equity or stock  Investing- The business uses cash to acquire other assets (Resources needed to start the business) - Long-Term Assets can be tangible (A physical resource like land or a building) or intangible (Non-Physical resource like a bond or patent)  Operating- The business engages in day-to-day activities that generates revenues and expenses 9. Accounting Practice  Financial Accounting Standards Board (FASB)- They are an independent organization that writes the rules for USA companies Generally Accepted Accounting Principles (Known as GAAP)  Securities and Exchange Commission (SEC)- Federal agency that enforces securities law and protect investors  International Accounting Standards Board (IASB)- This organization writes the rules for all other companies around the world 10. Basic Accounting Concepts of GAAP  Business Entity Concept- Record transactions of different entities separately  Cost Concept- Record assets at their historical cost  Going Concern Concept- Assume that a business is going to continue indefinitely unless otherwise indicated  Matching Concept- Record a period’s revenue on the periodic income statement with the expenses that helped make the revenue  Objectivity Concept- Base accounting records on objective evidence  Unit of Measure Concept- Report all financial statements in dollars  Accounting Period Concept- Report data on financial statements in separate time units  Adequate Disclosure Concepts- Report all data that users need to understand the financial condition of the business 11. Ethics and Responsible Reporting  Owners and lenders need accurate financial reporting from companies  Fraud Triangle (Rationalization, Opportunity, Pressure)  Guidelines for ethical conduct: - Personal standards of honesty and fairness - Consider effect of decisions on others - Consider obligation to others - Make decision in light of effect on others


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