ACCT 201 Review.pptx - Importance of Accounting Accounting...

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Importance of Accounting Accounting is an information and measurement system that identifies , records , and communicates relevant , reliable , and comparable information about an organization’s business activities.
Users of Accounting Information External Served by financial accounting (general-purpose financial statements) Have limited access but need relevant, reliable and comparable information Examples: Shareholders, lenders, directors, customers, suppliers, regulators, lawyers, brokers, and the press Internal Used by management to improve efficiency and effectiveness of an organization Those directly involved in managing and operating an organization
GAAP Principles Measurement (cost) Full disclosure Revenue recognition Matching (expense) recognition Assumptions Going-concern Monetary unit Time period Business entity Constraints Materiality Cost-benefit
Transaction analysis and the accounting equation An accounting system captures relevant data about transactions, and then classifies, records, and reports data. An accounting system reflects two basic aspects of a company What it owns (ASSETS) What it owes (LIABILITIES and EQUITY) Nonowners claims (liabilities) Owners claims (equity) Accounting Equation reflects the relation of assets, liabilities, and equity.
Accounting Equation ASSETS LIABILITIES AND EQUITY Retained earnings Common stock Notes payable Accounts payable Land Equipment Supplies Cash assets = liabilities + equity
Assets ASSET S cash accounts receivable notes receivable plant assets investment s store supplie s prepaid assets Resources owned or controlled by a company
Liabilities LIABILITI ES accounts payable notes payable accrued expenses unearned revenue bonds payable Creditors claims on assets
Equity common stock dividend s revenues expenses Equit y Owners claims (residual interest) on assets
Financial Statements Income Statement Statement of Owner’s Equity (also referred to as Statement of Stockholder’s Equity or Statement of Retained Earnings) Balance Sheet Statement of Cash Flows
Net income is the difference between Revenues and Expenses. Net income is the difference between Revenues and Expenses. The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities. The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities. Income Statement
The net income of $4,400 increases Owner's Equity by $4,400. The net income of $4,400 increases Owner's Equity by $4,400. Statement of Owner’s Equity FastForward Statement of Owner's Equity For Month Ended December 31, 2009 C, Taylor, Capital December 1, 2009 $ - Plus: Investment by ower $ 30,000 Net income 4,400 34,400 Less: Withdrawals by owner 200 C. Taylor, Capital, December 31, 2009 $ 34,200
The Balance Sheet describes a company’s financial position at a point in time. The Balance Sheet describes a company’s financial position at a point in time. Balance Sheet
Statement of Cash Flows

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