Midterm 1 - Chapter 1: What is Accounting? - Accounting...

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Chapter 1: What is Accounting? - Accounting consists of identifying, recording and communicating - Bookkeeping usually involves only the recording of economic events - Internal users are those individuals inside a company who plan organize and run the business (marketing managers, production supervisors, finance directors) - Managerial accounting; internal reports to help users make decisions about their companies - External users are individuals and organizations outside a company who wants financial information about the company (investors: use acct. information to make decisions to buy, hold or sell stock) (creditors: such as suppliers or bankers, use acct. information to evaluate the risks of granting credit or lending money - Financial Accounting provides economic and financial information for investors, creditors and other external users. - Taxing authorities such as the Internal Revenue Service want to know whether the company complies with tax laws - Regulatory agencies such as the Securities and Exchange Commission & Federal Trade Commission wanted to know whether the company is operating within prescribed rules. - Labor unions such as the MBLA wanted to know whether the owners pay increased wages and benefits - Ethics: the standard of conduct by which one’s actions are judged as right or wrong honest or dishonest, fair or unfair. (Sarbanes Oxley Act Of 2002) - Generally Accepted Accounting Principles (GAAP) was formed to indicated how to report economic events - The Securities and Exchange Commission (SEC) is the agency of the U.S. government that oversees U.S. financial markets and accounting standard setting bodies - The primary accounting standard setting body in the United State is the Financial Accounting Standards Board (FASB) and the primary accounting standard setting body in countries outside the U.S is the International Accounting Standards Board (IASB) - Monetary Unit Assumption: companies must include in the accounting records only transaction data that can be expressed in terms of money, this allows accounting to quantify or measure economic events - Economic Entity Assumption: an economic entity can be any organization or unit in society, it requires that the activities of the entity be kept separate and distinct forms (the owner must separate costs of the business and personal costs) - Proprietorship: a business owned by one person, usually only a relatively small amount of money or capital is necessary to start in business as a proprietorship, the owner or proprietor receives any profits, suffers any losses and is personally liable for all debts of the business - Partnership: a business owned by two or more persons associated as partners, it is similar to a proprietorship, a partnership agreement sets forth such terms as initial investment, duties of each partner, division of net income and settlement upon death or withdrawal of a partner, each partner has unlimited personal liability for the partnership’s debts, transactions must be kept separate from personal activities
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This note was uploaded on 04/29/2011 for the course ECON 101 taught by Professor Gottlieb during the Spring '08 term at Rutgers.

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Midterm 1 - Chapter 1: What is Accounting? - Accounting...

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