accy 202 study guid test 1 - Chapter One Accounting a...

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Chapter One Accounting : a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers. o Managerial or management accounting :accounting information for internal decision makers o Financial accounting : accounting information for external decision makers o GAAP (generally accepted accounting principles: the measurement rules used to develop the information in financial statements (written originally by the Securities and Exchange Commission, SEC, but now the Financial Accounting Standards Board, FASB) o IFRS (international financial reporting standards) : the international GAAP (written by the International Accounting Standards Board, IASB) Four Questions that provide the foundation for a company’s strategy and vision: o What business is the firm in? o How does the firm differentiate itself? o Where does the firm plan to do business? o Why is the firm in business? Four Basic Financial Statement s (usually prepared by profit-making organizations for use by investors, creditors, and other external decision makers. o Balance Sheet : reports the financial position (amount of assets, liabilities and stockholder’s equity) of an accounting entity at a particular point in time Structure: Name of the company, title of the statement, specific date of the statement, unit of measure, assets, liabilities, and shareholder’s equity Assets = Liabilities + Stockholders’ Equity This is important to creditor and investors because assets provide a basis to judge whether the company has sufficient resources to operate, and tells them if a company goes out of business how much can be sold for cash o Income Statement : reports the revenues less the expenses of the accounting period and the performance of a company over a period of time Revenues – Expenses = Net Income (the bottom line) Revenues: earned by the sale of goods and services to customers Expenses: amounts of resources used to earn revenues for a period Structure: revenues, expenses, pretax income, net income Net income does NOT equal net cash generated by operations Important to creditors and investors because it evaluates management’s performance, estimates “earning power”, predicts future earnings, and assess the risk of investing in or lending to a firm o Statement of Retained Earnings : reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period Beginning retained earnings + Net income – Dividends = Ending retained earnings
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This is important to investors to determine whether the company is reinvesting a sufficient portion of earnings to support future growth. Creditors care because the firm’s policy on dividend payments affects its
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accy 202 study guid test 1 - Chapter One Accounting a...

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