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Accounting Chapter 1, Week 1

by: Tykiera Manning

Accounting Chapter 1, Week 1 ACCT 225 002

Tykiera Manning
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These notes cover financial accounting: A Framework for Financial Accounting It discusses the following: *Main terms and individuals involved in accounting *The accounting equation *Business st...
Intro to Financial Accounting 225
Shannon D McCutchen
Class Notes
business, Math




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This 4 page Class Notes was uploaded by Tykiera Manning on Friday August 26, 2016. The Class Notes belongs to ACCT 225 002 at University of South Carolina taught by Shannon D McCutchen in Fall 2016. Since its upload, it has received 70 views. For similar materials see Intro to Financial Accounting 225 in Accounting (ACCT) at University of South Carolina.


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Date Created: 08/26/16
Chapter1: Financial Accounting Financial accounting  Accounting is a systemof maintaining recordsof a company’s operations and communicating that informationto decisionmakers(information providedforexternal users) People Terms/Vocabulary  Investors: decide whetherto invest in stock  Creditors: decide whetherto lendmoney  Customers: decidedwhetherto purchase product  Suppliers: decide the customer’sability to pay forsupplies  Managers: decide productionandexpansion  Employees: decide employment opportunities  Competitors: decide market share andprofitability  Regulators: decide onsocial welfare  Tax Authorities: decide ontaxationpolicies  Local communities: decide onenvironmental issues  Accountants: measure the activitiesof the companyandcommunicate those measurementsto others  Auditors–are hiredbythe company asan independent party to express anopinionof the extent towhich financial papers are prepared in accordance withGAAP (add credibility to a company’sfinancial statements Vocabulary/Termsto Know:  Assets(A) –resources of the company, ownor control(It’sa benefit)  Liabilities (L) - others/creditors’ claims on the assets or amounts owed to creditors (IDU)  Stockholder’sequity(S.H.E) - owner’s claimonasset  Revenue(R) - amount recorded for goods/servicessold  Expenses(E) - costsof providing goods/services  Dividends(D) – cashreturnedto the ownersof the company (stockholders)  NetLoss–whenexpensesexceedrevenues,the difference betweenthemisnegative Chapter1: Financial Accounting Accounting Equation  Investors and creditors want to know about thecompany’s resourcesandtheir claims to those resources Assets = Liabilities+ Stockholders’ Equity (resources) (claims to resources) Example: PurchaseCar $40,000 Down payment: $4,000 Car40000=Bank 36,000 +Me4,000 Owe: $36,000 Revenues,Expenses, andDividends  Allprofitsof the companyare claimed solelybystockholders  Profit is also referred to asNet Income Business Structures  Soleproprietorship: business is ownedbyone person  Partnership: business is ownedbytwo or more persons  Corporation: business is legallyseparate from itsowners (Limitedliabilityof stockholders) Business Activities  Financingactivities: transactionsthe companyhas with investors andcreditors  Investingactivities: transactions involving the purchase and sale of resourcesthat provide benefit for several years  Operatingactivities: transactionsthat relate to the primaryoperations of the company Communicating Through Financial Statements Primary financial statements:  Incomestatement: isa financial statement that reportsthe company’s revenuesand expense overaninterval of time Revenue – Expenses =Net Income  Statementofstockholders’equity:showsthe change in stockholders’ equity during the month. Beginning balancesare zero whenit is the firstmonthof a company. The Chapter1: Financial Accounting beginning balancesnext monthwillbe the ending balancesfromthe monthbefore *CommonStock (CS) –external source, Retained Earnings(RE) – internal source* Beginning RE + Net Income – Dividends = End RE Beginning CS + Issued = End CS S.H.E = End RE + End CS  Balancesheet: reportsassets, liabilities,and stockholders’ equityat a point in time Assets = Liabilities + Equity  Statementofcashflows:a financial statement that measuresactivitiesinvolving cash receiptsand cash paymentsoveran interval of time .We classifyallcash transactions into three categoriesthat correspondto the three fundamentalbusiness activities: *Operating activities: operating cash flowsinclude cashreceiptsand cash paymentsfor transactions involving revenuesand expenses (Dayto Day) *Investing activities: investing cashflowsgenerallyinclude cash transactionsforthe purchase andsale of investmentsandproductive long-termassets *Financing activities: financing cashflowsinclude cashtransactionswith lenders, such as borrowing moneyand repaying debt, andwith stockholders,suchas issuing stock andpaying dividends *****Cash goes in...Cashgoesout***** *****Cash isyour numberone asset***** *Any transactionthat affectsthe income statement ultimatelyaffects the balance sheet throughthe balance of retainedearnings* Making Decisionswith Accounting  Financial accounting information isessential to making goodbusiness decisions  No othercompanyinformationbetterexplainscompanies’ stock price performance thanfinancial accounting net income Objectivesof Financial Accounting Financial accounting shouldprovide information that:  Isusefulto investors andcreditors in making decisions  Helpsto predict cashflows  Tellsabout economicresources,claims to resources,and changes inresourcesand claims Chapter1: Financial Accounting CareerOptions PublicAccounting PrivateAccounting TheClients Corporations Employerof yourchoice Governments Nonprofit Organizations Individuals CareerOpportunities Auditors Financial accountants Tax preparers/planners Managerial accountants Business consultants Internal auditors Financial planners Tax preparers/Planners Info technologydevelopers Payroll managers Financial analysts Info. Managers Forensic accountants Management advisors Info risk manager Acquisitionspecialists Investment bankers FBI agents Environmentalaccountants Sportsagents Financial advisors Tax lawyers AssumptionsThat Underlie GAAP  Economicentityassumption:statesthat we canidentifyall economiceventswitha particular economicentity  Monetaryunitassumption: inorderto measure financial statement elements,we needa unit or scale of measurement  Periodicityassumption:dividesthe economiclife of anenterprise (presumedto be indefinite) into artificial time periodsfor periodic financial reporting  Goingconcernassumption: statesthat inthe absence of informationto the contrary, a businessentitywillcontinue to operate indefinitely


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