Chapter 14 - Accounting
is the recording, classifying, summarizing, analyzing, interpreting, & presenting
financial events & transactions to provide management & decision makers the accurate
information needed to make good decisions.
- information for users outside the company (shareholders, government
…balance sheet, income statement, statement of cash
- information for users inside the company (management) for their
analysis & use in making decisions. Auditing
- the job of reviewing & evaluating the
financial/accounting records used to prepare the financial statements.
6 Steps in the Accounting Cycle
- analyze source documents (sales slips, purchase orders),
record the transactions in a journal
(book of original/first entry/recording), transfer/post journal
entries to the ledger
(specific accounts), make a trial balance
(check to see if “everything adds up
correctly”), prepare financial statements, analyze them
- financial statement that reports the company’s financial condition at a specific
date/time. Note specific accounts that are included. Fundamental Accounting Equation
= Liabilities + Owners Equity
Terminology: assets, liquidity, current assets (cash, accounts receivable, notes receivable,
inventory), fixed assets (land, buildings/plant, equipment, furniture), intangible assets (patents,
copyrights, goodwill), liabilities, current liabilities (accounts payable, notes payable, accrued
expenses - taxes, salaries), long term liabilities (notes, bonds), shareholders/stockholders equity
(common stock, preferred stock, retained earnings).
- financial statement that reports the company’s profit (loss) after costs,
expenses, & taxes. Terminology: revenue/sales, sales returns & allowances, discounts, cost-of-
goods-sold (COGS), gross profit margin, operating expenses, operating margin, earnings before
interest & taxes (EBIT), interest expense, earnings before taxes (EBT), taxes, net
income/profit/earnings, net profit margin, earnings per share.