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ACCOU-2140 Chapter 1 notes

by: Ashley Pirl

ACCOU-2140 Chapter 1 notes ACCOU 2140

Marketplace > College of DuPage > Accounting > ACCOU 2140 > ACCOU 2140 Chapter 1 notes
Ashley Pirl
College of DuPage
GPA 4.0
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About this Document

This covers the first chapter of our notes that will be covered in our 1st quiz.
Financial Accounting
Dan M. Vitale Jr.
Class Notes




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This 8 page Class Notes was uploaded by Ashley Pirl on Thursday August 25, 2016. The Class Notes belongs to ACCOU 2140 at College of DuPage taught by Dan M. Vitale Jr. in Fall 2016. Since its upload, it has received 60 views. For similar materials see Financial Accounting in Accounting at College of DuPage.

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Date Created: 08/25/16
Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale 3 phases of accounting  Identifying: o Economic events relevant to business  Records: o Keeping a systematic chronological diary of events  Communicates: o Accounting reports o Financial statements DATA IS RECORDED IN THE AGGREGATE Communication is split into 2 parts  Analyzing: o Graphs, rations, percentages, etc.  Interpretation: o Explaining the uses, meaning, and limitations of reported data Accounting INCLUDES bookkeeping  Bookkeeping is only recording Accounting:  The entire process of identifying, recording, and communicating economic events EX. Meetings are not economic events Paychecks are economic events Internal Users vs. External Users Internal (in the company):  Marketing o What should be charged?  Management o What products are good?  Finance o What to do with money?  Human Resources o Bonuses or Raises?  External: o Creditors  Can they pay debts when due?  Banks, Suppliers o Investors  Earning enough?  Comparisons between companies?  Stockholders Ethics:  Financial Statements are often times what people judge a company by  Can't lose confidence in corporate accounting Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale o Sarbanes-Oxley Act (SOX)  More responsibility for the financial statements  They have to be signed off by CEOs and Financial Heads  Financial reporting wont be effective if the people don't operate ethically GAAP (Generally Accepted Accounting Principles):  Standards that are generally accepted and universally practices  Everything o Balance sheets, income statements, statement of stockholders' equity, statement of cash flows, note discloser  Set by o FASB (Financial Accounting Standards Board) o SEC (Securities and Exchange Commission)  Controls public companies  GAAP is only valid in the USA  Internationally IFRS is used o 100 countries use it but America refuses to change o IASB designed it IFRS vs. US Standards  Similarities: o Basic techniques for recording are the same o Emphasize transparency o Standards are there to meet the needs of investors and creditors o Have the same 3 most common forms of business organizations  Differences: o IFRS was developed by IASB o GAAP developed by FASB o IFRS is "principles-based" and GAAP is "rule-based" o SOX applies only to large public companies listed on the U.S. exchanges Historical Cost Principle (cost principle):  Dictates that companies record assets at their cost  The price of asset stays the same no matter how the market fluctuates  Most used principle Fair Value Principle:  Assets and liabilities should be reported at fair value o Fair value- what it is worth  Price of asset is recorded at what it is currently worth Principle used is decided by what is relevant and faithful representation (factually accurate) Monetary Unit Assumption:  Requires companies to include transaction date that can be expressed in terms of money in their accounting records Economic Entity Assumption: Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale  Requires the business be kept separate and distinct from activities of its owner and all other economic entities 3 Forms of Business Ownership  Proprietorship: o Owned by 1 person o Owner is normally also the manager o Owner receives profits, suffers losses, and is liable for all debts  Partnership: o Owned by 2 or more people o Often retail and service-type businesses o Generally unlimited personal liability o Partnership agreement  Corporation: o Ownership divided into shares of stock o Separate legal entity organized under state law o Limited Liability  If something happened to the business it only effects the business not the share holders or the owners Accounting Equation: Assets= Liabilities + Stockholder's Equity  Underlying framework of recording and summarizing economic events Asset:  Things that a company owns  Cash, Supplies, Equipment, Inventory, Accounts Receivable, Prepaid Assets, Etc. Liabilities:  Debts and obligations  Creditors: o Parts to whom money is owed  Accounts Payable, Notes Payable, Salaries and Wages Payable, Accrued liabilities, Etc. Owner's (Stockholder's) Equity:  Investments by stockholders represent the total amount paid in by stockholders for the shares they purchase  Owner's claim on total assets  Residual equity  Common stock and retained earnings  Is broken up into 3 parts: o Revenue (+):  Earning income  Sales, Fees, Services, Commissions, Interest, Dividends, Royalties, and Rent o Expense (-):  Cost of assets consumed or services used when trying to earn revenue  Salaries expense, rent expense, utilities expense, tax expense, etc. Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale o Dividends (-):  Distribution of cash or other assets to stockholders  Reduces retained earnings but are not an expense Transactions:  Business's economic events recorded by accountants o Can be external or internal o Not all activities are transactions  Needs 2 sides  Each transaction has a dual effect on equation  Is the financial position of the company changed?  Analyzed in terms of its effects on the 3 components of accounting equation Why? What's the end goal?  These must be done in order! o Income statement:  Measures the profit of the company over a specific period of time  Shows net income (or loss)  List revenues first then expenses  Doesn’t include investment and dividend transactions between stockholders and the business o Retained Earnings Statement:  Measures the changes in retained earnings for a specific period of time  Time period is the same as income statement  Tells the business why their retained earnings increased or decreased o Balance Sheet:  Reports the accounting equation as of a specific date (not period of time)  Assets at top then liabilities then stockholder's equity  A snapshot of company's financial condition  Usually done at a month's end or a year's end o Statement of Cash Flows:  Information on cash receipts and payments for a specific period of time  Where cash came from, what it was used for, and changes in cash balance are covered in it. Every heading on sheet must include:  Who is it?  What is it?  What period is it for? Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale Different forms of accounting:  Public Accounting: o Auditing, taxation, and management consulting to serve the general public  Private Accounting: o Cost accounting, budgeting, accounting information systems, and taxation Chaper 1 Notes By: Ashley Pirl Accouting 2140 Prof. Dan Vitale  Governmental Accounting: o Working with IRS, FBI, SEC, public colleges and universities, and in state and local governments  Forensic Accounting: o Accounting, auditing, and investigative skills to investigate theft and fraud


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