9.1.10 Handout - Ch. 1-1

9.1.10 Handout - Ch. 1-1 - ACC 212 Kevin McCauley September...

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ACC 212 Kevin McCauley September 2, 2010 Chapter 1 : Financial Accounting Accounting is the process of identifying , measuring , and communicating economic information to permit informed judgments and decisions. Accounting is the language of business. Users of Financial Statements External users : not directly involved in running the organization. Examples : Acc 12, Stock Holders, Bankers, Lenders, gov agencies like the IRS, SEC Internal users : directly involved in managing and operating an organization. Examples: Acc 213, managers of varies dept Basic Assumptions ( fill-in definitions) 1) Economic entity assumption: Accountants assume that the financial activities of business can be separated from the financial activities of the business owners. 2) Time period assumption: Assumes that economic information can be meaningfully captured and communicated over short periods of time. 3) Monetary unit assumption: Assumes that the dollar is the most effective means to communicated economic data. 4) Going concern assumption: Assumes that a company will continue to operate into the foreseeable future. ` 1
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ACC 212 Kevin McCauley September 2, 2010 FINANCIAL STATEMENTS Income statement: Revenues – Expenses = Net Income(NI) or Net Loss (NL) Prepared for a specific period of time (for an accounting period) Reports a company’s financial success or failure over that period of time Revenues – An increase in resources resulting from the sale of goods or providing services; found on income statement and accumulate throughout the accounting period. Revenue recognition principle – Revenue should be recorded when a resource has been earned . Expenses – Decrease in resources resulting from the sale of goods or providing services; found on income statement and accumulate throughout the accounting period. Matching principle – Expenses should be recorded in the period resources are used to generate revenues. Balance sheet (Statement of financial position) Assets = liabilities + (owner’s) equity Balance Sheet (Accounting Equation) must always balance.
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