ACT 230 Lec 1

ACT 230 Lec 1 - Introduction to Accounting By Joel...

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Unformatted text preview: Introduction to Accounting By Joel E.Thompson I. Business an economic entity that sells goods or services to customers and whose owners expect an adequate return for their investment that is at risk. Three basic types: A. Proprietorship - a business owned by one person who is personally liable for the debts of the business; B. Partnership - a business owned by two or more persons (partners) who are personally liable for the debts of the business; C. Corporation - a business that is a separate legal entity owned by stockholders who are not personally liable for the debts of the business. Accounting the process of providing financial information about an economic entity. It involves identifying, recording and communicating information about economic events. Financial Accounting the process of providing financial information to those primarily outside (e.g., investors and creditors) of an economic entity (a business in this course). A. Financial statements (and their related notes) are the main products of financial accounting. These include: 1. Balance sheet shows assets and claims of creditors and owners against them; 2. Income statement shows change in net assets from operations during a period; 3. Statement of cash flows shows where cash came from and what was done with it; 4. Statement(s) of changes in owners' equity shows changes in owners' accounts; and 5. Statement of comprehensive income shows all changes in net assets except those due to transactions with owners (includes net income). B. Generally accepted accounting principles (GAAP) are the rules or practices used to prepare financial statements. C. The Financial Accounting Standards Boards (FASB) has the primary responsibility for the creation of GAAP although others play a role (e.g., Securities and Exchange Commission (SEC) and American Institute of Certified Public Accountants (AICPA)). D. Certified Public Accountants (CPA's) audit financial statements as required by the SEC and many banks. 1. CPA's in their audits provide assurance that businesses follow GAAP in their preparation of financial statements. 2. If it is discovered that the financial statements were not in accordance with GAAP when the CPA said that they were, the II. III. CPA could lose his/her license to practice and be subject to civil/ criminal prosecution. IV. Basic Concepts A. Economic entity (business entity concept) states that one can account for a particular business distinctly from other businesses or owners. B. Going concern a business will stay in operation long enough to fulfill present plans. C. Monetary unit (unit of measure concept) the dollar (in the United States) is the appropriate measuring unit. D. Periodicity can divide up the life of a business into subperiods. E. Historical cost (cost concept) original exchange price is the proper valuation basis for most balance sheet items, at least initially. ...
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This note was uploaded on 04/18/2008 for the course ACT 230 taught by Professor Thompson during the Spring '08 term at N. Michigan.

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