Nature of Business and Accounting (A)
This type of business provides services rather than products to customers.
What is a Service Business
Example: Twitter, Snap Chat, Tik Tok are all service businesses.
These users of accounting information include investors, creditors, customers, and the government.
What are external users?
Accountants = Public Accountants and may pursue the Certified Public Accountants (CPA) license.
As a result of Accounting and Business Fraud, Congress passed this act to monitor the behavior of accounting and businesses.
What is Sarbanes-Oxley Act?
This common set of accounting principles, standards, and procedures must be used by public companies in the United States.
What are 'Generally accepted accounting Principles'?
The term that describes the resources owned by a business?
What is an 'Asset'?
Examples of Assets: Cash, Land, Building, Equipment.
This accounting term is used to describe items such as supplies that will be used in the business in the future and are considered an asset.
What are 'Pre-paid expenses'?
Of Interest: The effect of this transaction will increase assets (supplies) but will also either decrease an asset (cash) or increase the liability (accounts payable).
This type of business sells products they purchase from other businesses to customers.
What is a Merchandising Business?
Example: Macy's, Famous Footwear, Walgreen, CVS
This area of Accounting Provides Internal Users (i.e. managers and employees) with information to make internal business decisions.
What is Managerial Accounting or Management Accounting?
Accountants = Private Accountants and might pursue one of the following certifications.
Certified Payroll Professional (CPP)
Certified Management Accountant (CMA)
Certified Internal Auditor (CIA)
Certified Information Systems Auditor (CISA)
This organization was established by SOX for the oversight of the accounting profession.
What is the Public Company Accounting Oversight Board (PCAOB)?
This independent nonprofit organization is responsible for establishing accounting and financial reporting standards for companions and non-profit organizations in the United States following Generally Accepted Accounting Principles.
What is the Financial Accounting Standards Board?
The rights or claims to the assets are divided into two types:
1. One right is the debts of the business and called Liabilities.
2. Second are rights of the owners of a proprietorship, partnership, or Limited Liability and are called Owner's Equity.
What are the rights of creditors and the rights of owners?
Of Interest: Stockholders (Investors) own a corporation and are called Stockholders' equity.
This term is used to describe the amount you receive for selling goods or services to a customer.
What is 'Revenue'
Of Interest: Revenue increase Owner's Equity. Other terms used in place of Revenue.
Service: Fees Earned
Merchandising/Retail: Sales
Interest Earned: Interest Revenue
Rent received from a tenant: Rent Revenue
KEY: If a business provided a service or sold goods but are receiving the cash at a later date, the business will refer to these revenues as: Fees earned on Account or Sales on Account.
This type of business converts raw materials or basic inputs into products that are then sold to customers.
What is a Manufacturing Business?
Examples: Apple, Samsung, Ford, Cardinal Health
The objective of this area of accounting is to provide relevant and timely information for decision-making needs and often has sensitive data that is not distributed outside of the organization.
What is Managerial or Management Accounting?
The accounting career track employs accountants by companies, the government, and not-for-profit.
What is Private Accounting?
Service, Merchandising, and Manufacturing business may be organized in one of these four Business Entity (independent) Types.
What are Proprietorship, Partnership, Corporation, and Limited Liability entities?
This accounting equation shows the relationship among assets, liabilities, and owner's equity.
Assets= Liabilities + Owner's Equity
Of Interest:
1. Liabilities are usually shown before the owner's equity in the accounting equation because creditors have first rights to assets.
2. EVERY business transaction is an increase or decrease in one or more of the accounting equation elements.
3. Given any two amounts, the accounting equation may be solved for the third unknown amount.
For example: Assets = Liabilities + Owner's Equity
100,000 = 30,000 + 70,000
or Assets - Liabilities = Owner's Equity
100,000 - 30,000 = 70,000
'What are 'Accounts Receivable'?
Of Interest: Accounts Receivable are a claim against a customer (meaning the customer owes you and is therefore considered an Asset). It would also increase the Revenue (Fees earned on account or Sales on Account).
The role of ________ in business is to provide information for managers to use in operating the business as well as provide information to other users who assess the economic (financial) performance and condition of the business.
What is Accounting?
The primary objective for this area of accounting is to provide relevant and timely decision needs of users outside of the business.
What is Financial Accounting?
The accounting career track employs accountants individually or within a public accounting firm in audit, tax, or management advisory services.
What is Public Accounting?
This concept is also known as a separate entity and economic entity concept. It states that the transactions related to a business must be recorded separately from its owner.
What is the Business Entity Concept?
This term is used to describe an economic event or condition that directly changes a business's (entity's) financial condition or its results of operations.
What is a 'business transaction'?
Example: Paying a bill will lessen a business's financial condition because it now has less cash on hand.
Example: A vendor pays you cash for a transaction will increase a business's financial condition because you have increased cash.
This term is used for business transactions involving spending cash or using up assets (supplies) to earn revenue.
What are 'Expenses'.
Of Interest: Examples~ supplies used, paying wayes, utilities, and other services all for the purpose of earning revenue.
Key: Expenses decrease Assets and Owner's Equity
________ is the language of business (tells the financial story).
What is Accounting?
This type of financial accounting report is distributed to external users.
What are 'General-purpose' financial states?
These accountants provide services on a fee basis.
What are Public Accountants?
This concept stipulates that transaction amounts are initially recorded at their cost or purchase price.
What is the 'Cost Concept'
Of Interest: The cost concept involves the objectivity and unit of measure concepts.
1. Objectivity concept: requires that amounts recorded in the accounting records be the final agreed-upon amount.
2. Unit of measure concept: requires that transactions (economic data) be recorded in dollars.
This term identifies the liability created by a purchase on account (not paid with cash, so you owe the vendor).
What are 'Accounts Payable'?
Of Interest: Accounts Payable (AP) is a liability account (increase what you owe out)
This term is used when a business owner takes money from the business for personal use.
'What is an 'Owner, Drawing'?
Of Interest:
Owner withdrawals are the opposite of an investment in the business by the owner (decreases Owner's Equity)