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Definition
| a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers |
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| (statement of financial position) reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time |
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| the organization for which financial data are to be collected |
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| Basic Accounting Equation |
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| (Balance Sheet Equation): Assets = Liabilities + Stockholders' Equity |
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| (Statement of Income, Statement of Earnings, Statement of Operations) reports the revenues less the expenses of the accounting period |
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| the time period covered by the financial statements |
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| Statement of Retained Earnings |
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| reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period |
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| (Cash Flow Statement) reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing |
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| (Footnotes) provide supplemental information about the financial condition of a company, without which the financial statments cannot be fully understood |
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| Generally Accepted Accounting Principles |
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Definition
| (GAAP) are the meaurement rules used to develop the information in financial statements |
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| Securities and Exchange Commission (SEC) |
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Definition
| the U.S. government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements |
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| Financial Accounting Standards Board (FASB) |
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Definition
| the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles |
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Definition
| an examination of the financial reports to ensure that they represent what they claim and conform with GAAP |
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| Public Company Accounting Oversight Board (PCAOB) |
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| the private sector body given the primary responsibility to issue detailed auditing standards |
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| Financial Accounting vs. Managerial Accounting |
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Definition
Financial Accounting = periodic financial statements and related disclosures -> external decision makers (creditors, investors, suppliers, customers)
Managerial Accounting = detailed plans and continuous performance reports -> internal decision makers (managers) |
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| Headings of financial statements must include? |
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Definition
1)Name of entity
2)Title of the statement
3)Specific date of the statement (balance sheet "at", all others "for year ended")
4)Unit of measure |
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| "bottom line", the excess of total revenues over total expenses |
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| when total expenses exceed total revenues |
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| Equation for Income Statement |
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| Revenues-Expenses=Net Income |
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| Equation for Statement of Retained Earnings |
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Definition
| Retained Earnings, beginning of the period+Net Income-Dividends=Retained Earnings, end of the period |
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Definition
| unincorporated business owned by one person |
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| an unincorporated business owned by two or more persons known as partners |
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| a business incorporated under the laws of a particular state, the owners are called stockholders or shareholders |
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1)Audit or Assurance Services
2)Management Consulting Services
3)Tax Services |
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| when the founders also functioned as managers of the business |
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| when a company borrows additional money or pays back money to its lenders and receives additional funds or pays dividends to owners; directly related to the financing of the enterprise itself |
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Definition
| when a company buys or sells items such as plant and equipment used in production; related to the acquisition or sale of the company's productive assets |
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| parties outside the firm who invest in the company |
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| Managerial/Management Accounting |
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Definition
| developing accounting information for internal decision makers |
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| accounting for external decision makers |
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| Basic Balance Sheet Layout |
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Definition
Assets: Cash, A/R, Inventories, Plant & Equipment, Land
Liabilities: A/P, Notes Payable
Stockholders' Equity: Contributed Capital, Retained Earnings |
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Definition
| the economic resources owned by the company |
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Definition
| the company's debts or obligations |
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| the amount of financing provided by owners of the business and earnings |
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| Basic Income Statement Layout |
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Definition
Revenues: Sales revenue
Expenses: Cost of goods sold expense, Selling, general, and administrative expense, Research and development expense, Interest expense
Pretax Income: Income tax expense
Net Income |
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Definition
| cash generated from the sale of goods or services to customers. Normally reported for goods or services that have been sold to a customer whether or not they have been paid for |
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| the dollar amount of resources the entity used to earn revenues during the period |
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| Basic Statement of Retained Earnings Layout |
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Definition
Retained earnings (date)
Net income for (date)
Dividends for (date)
Retained earnings (date) |
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Definition
| cash flows that are directly related to earning income |
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| Basic Layout for Statement of Cash Flows |
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Definition
-Cash at the beginning of the year
-Cash flows from operating activities
-Cash flows from investing activities
-Cash flows from financing activities
-Net decrease/increase in cash during the year
-Cash at the end of the year |
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Term
| Affects of publishing financial statements |
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Definition
1) Effects on the selling price of a company's stock
2) Effects on the amount of bonuses received by management and employees
3) Loss of competitive information to other companies |
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Term
| Three Steps to Ensure the accuracy of records |
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Definition
1) System of controls
2) External Auditors
3) Board of Directors |
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Term
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Definition
market value per share/earnings per share (EPS)
measures how many times current year's earnings investors are willing to pay for a company's stock; higher ratio means investors have more confidence |
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Definition
| each partner in a general partnership is responsible for the debts of the business |
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| Stockholders/Shareholders |
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Definition
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Definition
| stockholders are liable for the corporation's debts only to the extent of their investments |
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