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Accounting Final

TermDefinition
Sole Proprietorship Owned by one person, simple to establish, owner-controlled, tax advantages
Partnership Owned by two or more persons, simple to establish, shared control, broader skills/resources, tax advantages
Corporation A separate legal entity owned by stockholders, easier to transfer ownership, easier to raise funds, no personal liability for stockholders
Internal Users Managers who plan, organize, and run a business (e.g., marketing managers, production supervisors, finance directors)
Accounting Information Accounting is the information system that identifies, records, and communicates events to users
External Users Individuals outside the organization who want financial information, ex: investors, creditors
Investors (Owners) Decide whether to buy, hold, or sell stock
Creditors (Lenders) Evaluate the risk of selling on credit or lending money (e.g., banks, suppliers)
Debt financing Borrowing money (creates Liabilities like Notes Payable)
Equity financing Issuing shares of stock (creates Common Stock; payments to stockholders are Dividends)
Investing Activities Purchasing the resources needed to operate
Assets Resources owned by the business (e.g., Computers, Trucks, Buildings, Investments)
Operating Activities The actual operations of the business
Revenues Amounts earned from sales or services (e.g., Sales revenue)
Expenses Costs incurred to earn revenue (e.g., Cost of goods sold, salaries, rent).
Net Income When Revenues > Expenses
Net Loss When Expenses > Revenues
What are the four financial statements? Income statement, retained earnings statement, balance sheet, statement of cash flows
Income statement Reports revenues and expenses for a specific period of time. Equation: Total revenue - total expenses = Net Income. This is prepared first because Net Income is needed for the next statement.
Retained Earnings Statement Shows amounts and causes of changes in retained earnings for a specific period of time. Equation: Beginning period retained earnings + Net Income/Loss - Cash dividends - Stock dividends. The ending balance here is needed for the Balance Sheet.
Balance Sheet Reports assets and claims to assets at a specific point in time. The Accounting Equation: Assets = Liabilites + equity. Assets are listed first, followed by Liabilities and Stockholders' Equity.
Statement of Cash Flows Provides information about cash receipts and cash payments for a specific period of time. Sections: Operating, Investing, and Financing Activites
Sarbanes-Oxley Act (SOX) Regulations passed by Congress to reduce unethical corporate behavior. It requires top management to certify the accuracy of financial information and increases penalties for fraud
GAAP (Generally Accepted Accounting Principles) The accounting rules used in the United States, developed by the FASB (Financial Accounting Standards Board). Generally considered "rules-based
IFRS (International Financial Reporting Standards) International standards developed by the International Accounting Standards Board (IASB). Generally considered "principles-based" and simpler than GAAP
MD&A (Management Discussion and Analysis) Management's view on ability to pay obligations, fund operations, and results of operations
Annual Report Elements Financial Statements, MD&A (Management Discussion and Analysis), Notes, Auditor’s report
Notes Clarify and provide detail to the financial statements
Auditor’s Report An opinion by a CPA on the fairness of the financial statements
If Expenses exceed Revenues, what is the result? Net Loss
Which activity involves borrowing money from a bank? Financing Activity
True or False: The Sarbanes-Oxley Act (SOX) applies to all companies worldwide False. It applies to large public companies listed on U.S. exchanges
Which statement is prepared for a specific "point in time" rather than a period of time? The Balance Sheet
Created by: lavenderdreamy
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