Class Notes Chapter 1: Accounting for Decision-Making



Class Notes Chapter 1: Accounting for Decision-Making

Chapter 2: Basic Financial Statements

What is accounting? Accounting is an information system that identifies, records, and communicates the economic events (transactions) of an organization to interested users. Financial accounting is the process that culminates in the preparation of financial reports on the enterprise as a whole for use by parties both internal and external to the organization. .

Internal users include:

External users include:

Financial Statements are the principal means through which financial information is communicated to those outside an enterprise. The financial statements include:

1. The Income Statement

2. The Statement of Retained Earnings

3. The Balance Sheet

4. The Statement of Cash Flows

1. The Income Statement: Revenues – Expenses = Net Income

Revenues:

Expenses:

2. The Statement of Retained Earnings: Beginning Balance of Retained Earnings

+ Net Income

- Dividends Declared

= Ending Balance of Retained Earnings

3. The Balance Sheet: Assets = Liabilities + Shareholders’ Equity

Assets:

Liabilities:

Shareholders’ Equity:

4. Statement of Cash Flows: Sources and Uses of Cash from Operating Activities, Investing Activities, and Financing Activities

Operating Activities:

Investing Activities:

Financing Activities:

The objectives of Financial Accounting are to provide information:

a. That is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

b. To help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans; and

c. About the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its resources and claims to those resources.

The accounting profession has developed a common set of standards and procedures known as Generally Accepted Accounting Principles (GAAP). These principles serve as a general guide to the accounting practitioner in accumulating and reporting the financial information of a business enterprise.

Important Organizations

1. Financial Accounting Standards Board (FASB)

2. Securities and Exchange Commission (SEC)

3. International Accounting Standards Board (IASB)

4. Public Company Accounting Oversight Board (PCAOB)

5. American Institute of Certified Public Accountants (AICPA)

6. Institute of Management Accountants (IMA)

7. Institute of Internal Auditors (IIA)

8. American Accounting Association (AAA)

Chapter 1: Recommended Exercises: 7, 8

Chapter 2: Recommended Problems: 1A, 4A, 8A

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