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Date Created: 09/04/14
Accounting Chg 1 quotthe language of business a system of maintaining records of a company39s operations and communicating that information to decision makers mm Investment Lending Regulatory Employment Management provide internal users managers with accounting information provide external users with accounting information mi O O O 0 measure business activities of a company communicate those measurements to external parties for decision making company that is legally separate from its owner 39 FE o stockholders have not responsible for financial obligation CONS o double taxation I when company earns the money it pays corporation income tax I stockholders pay personal income tax from their share business owned by one person business owned by two or more people 39 FE o lower taxes compared to corporations I taxed at the owners personal income tax rate 39 E o no investor o neither offer limited liability 2 resources of a company 2 amount owed payment that must be paid by a specified date owners investors claim to resources ACCOUNTING EQUATION amount earned from selling products and services to customers cost for providing products services revenues grater the expanse expanse grater then revenue cash payments to stockholders Financial Statement periodic reports to external users 1 reports company39s revenues and expenses over an interval of time a Eguation 2 financial statement summarizing changes in stock holders equity over interval of time a Components i amount of money invested 1 Eguation ii cumulative amount of income not distributed in dividends 1 Eguation a b Eguation 3 financial statement presenting the financial position of company on a particular date a Eguation 4 measures activities involving cash receipts and cash payments over interval of time a include cash receipts and cash payments for transactions involving revenues and expenses b cash transactions for the purchase and sale of investments and productive provide benefit for more than one year c cash transactions with lenders borrow repay debt issuing stock paying dividends d Eguation Net income and stock price are directly related If net income increases so will stock prices MDampA section typically includes managements views on significant events trends and uncertainties pertaining to the company39s operations and resources offer additional information either to explain the information presented in the financial statements or to provide information not included in the financial statements Rules of Financial Accounting GAAP Rules of financial accounting FASB is an independent privatesector body with fulltime voting members and a very large support staff establishes financial accounting and reporting standards in the United States IASB the global counterpart to the FASB is the international accounting standards board o to develop a single set of highquality understandable global accounting standard to promote the use of those standards to bring about the convergence of national accounting standards around the world are hired by a company as an independent party to express a professional opinion of the extent to which financial statement party to express a professional opinion of the extent which financial statements are prepared in compliance with GAAP and are free of material misstatement Chapter 2 transactions the firm conducts with a separate economic entity Examples o Selling products o Purchasing supplies o Paying salaries o Borrowing money Occur during the period are events that affect the financial position of the company but do not include an exchange with a separate economic entity Examples o Using supplies o Earning revenues after having received cash in advance from a customer Occur at the end of the period Six step process to measure external transactions 1 Use source documents to identify accounts affected by an external transaction a Source documents i Sales invoices ii Bills from suppliers iii Signed contracts b Documents usually identify the date and nature of each transaction the participating party and the monetary terms 2 Analyze the impact of the transaction on the accounting equations a summarizes all transactions related to a particular item over a period of time i Example 1 Asset accounts include cash supplies and equipment b list of all account names used to record transactions of a company 3 Assess whether the transaction results in a debit of a credit to the account balance 4 Record the transaction in a journal 5 Post the transaction to the Taccount in the general ledger 6 Prepare a trail balance
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