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Accouting Exam 1 Review

Accouting Exam 1 Review - Chapter One Accounting in Action...

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Chapter One: Accounting in Action Accounting consists of three basic activities- it identifies, records and communicates the economic events of an organization to interested users. o To identify economic events, a company selects the economic events relevant to its business. o Once a company identifies, it records those events in order to provide a history of its financial activities. o Recording- consists of keeping a systematic, chronological dairy of events, measured in dollars and cents. o A communicates the collected information to interested users by means of accounting reports, the most common of these is financial statements. Data is reported in the aggregate, or when information is accumulated am dos reported in one amount Analysis - involves use of ratios, percentages, graphs and charts to highlight significant financial trends and relationships. Interpretation- explaining the uses, meaning, and limitations of reported data. Bookkeeping - usually only involves the recording of economic events. Internal users - use accounting info to plan, organize and run the business Managerial accounting - provides internal reports to help users to make decisions about their companies. External users - individuals and organizations outside a company who want financial information about the company. (ex investors and creditors.) Sarbanes-Oxyley Act of 2002- law passed by Congress to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals. Ethics - the standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or unfair.
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GAAP (Generally Accepted Accounting Principles) - common set of standards that indicate how to report economic events. SEC (Securities and Exchange Commission) – agency of US gov that oversees U.S. financial markets and accounting standard bodies. FASB ( Financial Accounting Standards Board) – primary accounting standard setting body in US IASB (International Accounting Standards Board - works with FASB and issues -iGAAP Cost principle - companies must record assets at cost. Is reliable at the cost of relevant. Monetary unit assumption - companies include in the accounting records only transaction data that can be expressed in terms of money. Economic entity assumption - activities of the entity be kept separate and distinct from activities of owner and other economic entities Basic accounting equation : o Assets = Liabilities + Stockholder’s Equity o Assets- resources a business owns. Has capacity to provide future service or benefits. o Liabilities- claims of those whom the company owes money. Some categories include: accounts payable, note payable, wages payable and sales and real estate taxes payable. o
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Accouting Exam 1 Review - Chapter One Accounting in Action...

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