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.
External Users
Develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports.
Financial Accounting Standard Board
This common set of accounting principles, standards, and procedures must be used by public companies in the United States.
Generally Accepted Accounting Principles
The term that describes the resources owned by a business?
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.
Prepaid expenses
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.
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.
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.
Financial Accounting Standards Board (FASB)
Any debts your company has, whether it's bank loans, mortgages, unpaid bills, or any other sum of money that you owe someone else.
Liability
This term is used to describe the amount you receive for selling goods or services to a customer.
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. It often has sensitive data that is not distributed outside of the organization.
Managerial or Management Accounting
The accounting career track employs accountants by companies, the government, and not-for-profits.
Private Accounting
A concept that determines whether the omission or misstatement of information in a financial report would impact a reasonable user's decision-making.
Materiality Concept
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
This account is used to record the asset when a good is sold or service provided but you will be paid in the future.
Accounts Receivable
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.
Accounting
The primary objective for this area of accounting is to provide relevant and timely decision needs of users outside of the business.
Financial Accounting
The accounting career track employs accountants individually or within a public accounting firm in audit, tax, or management advisory services.
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.
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.
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.
Expenses
Examples: supplies used, paying wages, utilities, and other services to earn revenue.
Key: Expenses decrease Assets and Owner's Equity
________ is the language of business (tells the financial story).
Accounting
It involves assigning costs to cost objects, including a company's products, services, and business activities.
Cost Accounting
Independent accountants who serve organizations and individuals on a fee basis.
Public Accountants
Public accountants offer a wide range of services, including preparation of financial statements and tax returns, independent auditing of financial records and accounting methods, and management consulting.
This concept stipulates that transaction amounts are initially recorded at their cost or purchase price.
Cost Concept
This term identifies the liability created by a purchase on account (not paid with cash, so you owe the vendor).
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.
Owner, Drawing
Owner withdrawals are the opposite of an investment in the business by the owner (decreases Owner's Equity)