Study Guide, Ch. 1-4

Study Guide, Ch. 1-4 - CHAPTER 1: ACCOUNTING INFORMATION:...

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CHAPTER 1: ACCOUNTING INFORMATION: USERS AND USES 1. What’s the Purpose of Accounting? o Accounting is a service activity designed to accumulate, measure and communicate financial information about businesses and other organizations and to provide information for making informed decisions about how to best use available resources. o Accounting is often called the “language of business.” 2. Who Uses Accounting Information? o Management accounting focuses on providing reports for INTERNAL use by management to assist in making operating decisions and in planning and controlling a company’s activities. o Financial accounting provides information to meet the needs of EXTERNAL users. o The three general-purpose financial statements are the balance sheet, the income statement, and the statement of cash flows. o The financial statements are used by interested external parties such as investors, creditors, suppliers, customers, employees, competitors, the government, and the press. 3. Within What Kind of Environment Does Accounting Operate? o The rules governing financial accounting are called generally accepted accounting principles (GAAP). o In the United States, GAAP is set by a private, nongovernmental group called the Financial Accounting Standards Board (FASB). o Worldwide GAAP is set by the International Accounting Standards Board (IASB) based in London. o Other US organizations that are important to the practice of accounting are the SEC, the AICPA, and the IRS. o Because the practice of accounting requires professional judgment, accountants are frequently faced with ethical dilemmas. o Technology has changed the way accounting information is collected, analyzed, and used. However, computers have not replaced the accountant nor eliminated the need for qualified decision makers. 4. So, Why Should I Study Accounting? o Everyone is affected by accounting. o Each individual needs some accounting skills in order to organize his or her personal finances. o Each person in a business, charity, or other organization can use accounting information to make better decisions.
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CHAPTER 2: FINANCIAL STATEMENTS: AN OVERVIEW 1. The Balance Sheet o Balance sheet—a summary of the financial position of a company at a particular date o Asset—economic resource owned or controlled by a company o Liability—economic obligation to deliver assets or provide a service o Equity—equal to total assets minus total liabilities and representing the book value of the assets that belongs to the owners after the liability obligations have been satisfied; stems from direct owner investment and past profits retained in the business o Accounting equation—Assets = Liabilities + Owners’ Equity o Format—in the balance sheet, assets and liabilities are typically separated
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Study Guide, Ch. 1-4 - CHAPTER 1: ACCOUNTING INFORMATION:...

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