Accounting- information system that measures business activity , processes the data into reports, communicates the results to decision makers

Financial Statements- report on a business in monetary terms

Accounting can be divided into 2 fields: Financial and Managerial

• Financial Accounting-provides information for external decision makers
• Managerial Accounting- provides information for internal decision makers

Governing Organizations:

• FASB- Financial Accounting Standards Board
• PCAOB- Public Companies Accounting Oversight Board
• AICPA- American Institute of Certified Public Accountants
• GAAP- Generally Accepted Accounting Principals

Sarbanes Oxley Act- in response to Enron, it made it a criminal offense to falsify financial statements. It also created PCAOB

Types of Financial Statements in Accounting

Types of Business Organizations:

• Proprietorship- single owner
• Partnership- 2 owners
• Corporation- legal entity
• Limited Liability Partnership- each member is responsible for own actions
• Not for profit – approved by IRS

Fiduciary Responsibility- legal responsibility to perform duties in trustworthy manner

Corporations:

• Separate Legal Entity
  • Business entity formed under state law
  • Granted charter which acts as articles of incorporation
  • Authorization is granted by state to form corporation
  • Charter specifies how much stock can be sold
  • Continuous Life
  • No Mutual Agency
  • Limited Liability of Stockholders
  • Separation of Ownership and Management
  • Corporate Taxation
    • Annual Franchise Tax
    • Income taxes
    • Government Regulation
    • Organization
      • Stockholders
      • Board of directors
      • Chairperson of the board
      • President
      • VP’s and Secretary

Accounting Concepts and Principals

• Entity Concept- refers to one business separate from the owners
• Faithful Representation- data is correctly represented
• Cost Principals- Historical Cost
• Going Concern Concept- Entity will remain in operation in future
• Stable Monetary Unit Concept- stable currency buying power is assumed

Accounting Equation:

• Assets- something the business owns that has value
  • Assets = Liabilities + equity
  • Liabilities- something a business owes
    • Liabilities = Assets – equity
    • Equity- The owner’s claims to assets of a business
      • Equity = assets – liabilities

Equity:

Equity of a corporation is called shareholder’s equity

Equity consists of paid in capital and retained earnings

• Paid in Capital (contributed capital)- stock
• Retained Earnings- Revenues and expenses

Net income- retained earnings before dividends are paid out

Review: Assets (what is owned) = liabilities (what you owe) + equity (net worth)

Types of Financial Statements:

• Income statement- net income reported
• Statement of Retained Earnings- what was done with retained earnings (dividends?)
• Balance Sheet- shows assets and what is owed
• Statement of Cash Flows- shows whether cash receipts increased or decreased

Financial Statement Headings:

Name of Business

Name of Type of Financial Statement

Date reported

Statement Preparation

1. Income Statement
2. Retained Earnings
3. Balance Sheet
4. Cash Flow

I am Alexander Glaser, I am an online writer specializing in Economics Tutorials

Alexander Glaser

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