ACCTG 215 Class Notes 1-15
ACCTG 215 Class Notes 1-15 ACCTG 215
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This 16 page One Day of Notes was uploaded by Shogo Okuda on Tuesday October 28, 2014. The One Day of Notes belongs to ACCTG 215 at University of Washington taught by Wells in Winter2010. Since its upload, it has received 124 views. For similar materials see Introduction to Accounting and Financial Reporting in Accounting at University of Washington.
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Date Created: 10/28/14
INTRODUCTION TO ACCOUNTING WHAT IS ACCOUNTING 39 Agi through which information primarily quantifiable in nature about an economic imig is Qregared and communicated to a variety of i who then use this information in a variety of different decisions which affect the economic wealth of the reporting entity O WILLIAM WELLS 19892010 1 162010 INTRODUCTION TO FINANCIAL ACCOUNTING SYSTEM an established and orderly way of doing things L Hindus India devise numerals except 0 AD 600 E Trade and printing press spread use of numerals Q Fra Luca Paciola describes double entry accounting 1760 Engand s industrial revolution sparks more business and thus need for information record keeping becomes for formalized 1845 A new business corporation law in England stimulates accounting standards independent audits and the organization of an accounting profession 1887 American Association of Public Accountants created at the suggestion of its English counterpart predecessor of AICPA 1896 New York law confirms the title Certified Public Accountant examination but not schooling or experience required 1899 First woman accountant certified 143 1903 US Steel makes voluntarily disclosures to stockholders 1907 Collapse of a few banking institutions discredits big business in pubic s eyes because they had not made their financial reports public or had them independently certified 1913 First federal income tax enacted by Congress 1917 Federal Reserve Board with help from AICPA prepares Approved Methods for the Presentation of Balance Sheet Statements first authoritative outline of scope of an audit POST 1929 deferred 1 As described by South Western Publishing Co in its Classic Moments in Accounting poster O WILLIAM WELLS 19892010 2 162010 INTRODUCTION TO FINANCIAL ACCOUNTING E ONQMIC ENTITY USERS TYPES OF ACCOUNTING Individuals Government Tax Insiders Managerial Organizations Government Citizens Government Citizen Government representatives Grantors Government Lenders Government Insiders Managerial Nonprofit DonorsGrantors Not for profit Government Tax Insiders Managerial Business for profit Insiders Managerial Commercial buy Owners sell Lenders creditors Labor unions FINANCIAL Industrial make Customers EXTERNAL sell Suppliers Competitors Entity single unit Others O WILLIAM WELLS 19892010 3 162010 0 WILLIAM WELLS 19892010 4 162010 INTRODUCTION TO FINANCIAL ACCOUNTING 3 INPUT MARKET PRODUCTON OUTPUT MARKET 3 p 2 SERVICE gt 3 P T I ACQUIRE MEANS OF SELL RESULTS OF II E PRODUCTIONSERVICE EFFORTS E Obtain funds Spend some Next overhead funds to produce or make finished goods for sale Buy longterm resources Consume some of Property these resources Building when producing Equipment finished goods or Intangibles eg patent services for sale Buy short term Consume some of E goodsservices for resources these resources some inflow such as Raw Materials when producing cashpromises Finished goods finished goods or ACCOMPLISHMENT Supplies services for sale Insurance minus Etc Acguire and immediately Outflows sacrifices to consume other generate the inflows resources EFFORT EXPENDED Other inoutflows not directly related to the sale of goods C WILLIAM WELLS 19892010 5 162010 FINANCIAL POSITION Balance Sheet C WILLIAM WELLS 19892010 ltnot sod sodgt ECONOMIC PERFORMANCE Income Statement Cash flow Statement 162010 INTRODUCTION TO FINANCIAL ACCOUNTING DECISIONS Where to get the necessary funds Within the business reinvest prior net earnings profit Lenders borrow funds see below Owners initial or subsequent Contributions see below INFLOWS OUTFLOWS I OCH J BREAK EVEN BANKRUPTCY Delay STATUS QUO WELFAREBNLOUTS consumption No GROWTH OR DECLINE CONSUME ALL CONSUME AND SAVE SAVE ALL NO CAPITAL FORMATION Balance between CAPITAL NOT USED DEMAND gt SUPPLY SUPPLY gt DEMAND EXCEED PROD CAPACITY capital formation UNDER USE PROD CAPACITY PRICES INCREASE PRICES DECREASE INFLATION and capital usage RECESSION CAPITAL USAGE CAPITAL FORMATION FORM NEW COMPANIES INDIVIDUALS AND BUSINESSES MERGEACQUIRE OLD COMPANIES BANKS AND S amp L39S NEw IDEASEQUIPMENT INSURANCE COMPANIES REPLACE OLD RESOURCES PENSION FUNDS O WILLIAM WELLS 19892010 7 162010 COVER SHORTTERM CASH NEEDS MANAGEMENT INVESTORS OWNERS LENDERS DECISIONS WHO GETS HOW MUCH WHEN UNDER WHAT TERMS C WILLIAM WELLS 19892010 8 162010 INTRODUCTION TO FNANCA ACCOUNTING DECISIONS DM Decision Maker J EXAMPLE INVEST E DEFINE THE Unlimited options Consume or D PROBLEM Scarce postpone resources Investto whom terms MAKE Narrow range of 3910 annual return D NECESSARY options Degree of risk ASSUMPTIONS influences Duration Prospective Relevant I S GATHER Historical information N P Reliable F E PERTINENT information 0 C R I FACTS M A A L T I I S O T N ADDRESS What are the Risksreturns D ALTERNATIVES advantages and Amount and timing disadvantages Environment Credibility of information O WILLIAM WELLS 19892010 9 162010 REACH CONCLUSIONS TAKE ACTION EVALUATE THE RESULTS Which solves the problem best The decision ls issue satis factorily resolved C WILLIAM WELLS 19892010 10 Which options are preferred Investdivest Do nothing Return 10 Risk acceptable DM DM DM 162010 INTRODUCTION TO FNANCA ACCOUNTING DECISIONS INFORMATION SPECIALIST 39 Outside the business Professional analysis Trade publications Credit agencies External auditors Consumer advocates Courts of law Regulatory agencies Businessfinancial press 39 From the business itself Studies Announcements etc Advertising Financial Accounting 39 Prepared recording events Communicated summarizing recorded events into reports Provid Useful information e Relevant helps confirm past eventsproject future events Reliable reasonably free of biaserror is what occurred Historical in perspective Figures need supplemental narrative explanations To Decision makers outside the firm Current investors stewardship reports Potential investors attract capital Others regulatory agencies public labor unions etc o WILLIAM WELLS 19892010 11 162010 About Resources and claims to those resources Balance Sheet Effects of transactions events etc on those resources claims Amounts timing and certainty of cash flows 3 WILLIAM wens 19892010 12 162010 INTRODUCTION TO FINANCIAL ACCOUNTING Affect the economic wealth ie why accounting is important Primary Business s perspective facilitates raising capital for new ideas or sustaining existing operations in difficult times Investors perspective buy sell hold the stock Lenders perspective lend collect modify the borrowing terms Others perspective grant credit ask for wage increases etc Secondary Control actions of others eg call in loan convert to stock Rewards and penalties bonuses stock options promotions fired 0 WILLIAM wELLs 19892010 13 162010 ACCTG 215 Notes 115 Chl Sole proprietorship business owned by a single person Partnership business owned by 2 or more persons Corporate advantage limited liability of the corporation s stockholders Limited Liability stockholders are not held personally responsible for the nancial obligations of the corporation Corporate disadvantage higher tax burden Generally corporate income tax rate is greater than the individual income tax rate In addition corporation tax is taxed twice rst when the company earns it and pays corporate income taxes on it and then gain when stockholders pay personal income taxes on any amounts the rm distributes to them as dividends Double taxation Ch2 Enron and WorldCom 2 of the highest pro le cases of accounting fraud in US history Sarbanes OXley Act Public Company Accounting Reform and Investor Protection Act of 2002 SOX Some Oversight board Corporate executive accountability Nonaudit services Retention of Work papers Auditor rotation Con icts of interest Hiring of auditor Internal control Internal control company s plan to 1 Improve the accuracy and reliability of accounting information and 2 Safeguard the company s assets Effective internal control builds a Wall to prevent misuse of company funds by employees and fraudulent or errant nancial reporting Framework provided by Committee of Sponsoring Organizations COSO 5 components of Internal Control Control Environment refers to the top to bottom attitude of the company W respect to internal controls top is bad everyone else will be bad Risk Assessment risk of failing to achieve company objectives Control Activities Separation of duties individuals Who have physical responsibility for assets should not also have access to accounting records Information and Communication reliable nancial accounting information Monitoring Continual monitoring of internal activities The top executives are the ones who must take nal responsibility for their establishment and success Internal control systems are especially susceptible to collusion Collusion 2 or more ppl act in coordination to circumvent internal controls Effective internal controls and ethical employees alone cannot ensure a company s success or even survival Ch4 Paid in Capital amount stockholders have invested in the company Retained earnings amount of earnings the corporation has retained that is the earnings not paid out in dividends Treasury Stock corporation s own stock that it has reacquired Model Business Corporation Act designed as a guide to states in the development of their corporate statutes Articles of incorporation describe a the nature of the rm s business activities b the shares to be issued and c the initial board of directors Organization chart traces the line of authority for a corporation Angel investors wealthy individuals in the business community willing to risk investment funds on a promising business venture Venture Capital rms provide additional nancing often in the millions for a percentage ownership in the company Initial public offering rst time a corporation issues stock to the public Stock of a Publicly held corporation trades on NYSE AMEX NASDAQ or OTC Privately held corporation does not allow investment by the general public and normally has fewer stockholders Stockholder rights 1 Right to vote 2 Right to receive dividends 3 Right to share in the Distribution of Assets 4 Preemptive Right Corporation offers 3 primary advantages over sole proprietorships and partnerships 1 Limited liability 2 Ability to raise capital 3 Lack of mutual agency Limited liability even in the event of bankruptcy stockholders in a corporation can lose no more than the amount they invested in the company Attracting outside investment is easier for a corporation An investor can sell his ownership interest at any time and wout affecting the structure of the corporation or its operations Disadvantage 1 Additional taxes 2 More paperwork Double taxation corporation pays income taxes on its earnings and then stockholders pay taxes a second time on the corporate dividends they receive Additional paperwork needed which are intended to ensure adequate disclosure of the information investors and creditors need S corporation allows a company to enjoy limited liability as a corporation but tax treatment as a partnership cannot have more than 100 stockholders Limited liability companies and limited liability partnerships offer limited liability and avoid double taxation but no limits on the number of owners as in an S corporation Common stockholders true owners of the business Authorized stock total number of shares available to sell stated in the company s articles of incorporation Does not result in a journal entry in the accounting records BUT corporation is required to disclose the number of shares authorized Issued stock number of shares that have been sold to investors Outstanding stock number of shares held by investors Issued and outstanding are the same amounts as long as the corporation has not repurchased any of its shares aL treasury stock Authorized unissued issued Issued treasury stock 2 outstanding
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