- Information
- AI Chat
Chapter 1 Accounting in Business
Intermediate Accounting I (ACC 303)
Tarleton State University
Preview text
Deprecated API usage: The SVG back-end is no longer maintained and may be removed in the future. Deprecated API usage: The SVG back-end is no longer maintained and may be removed in the future. Deprecated API usage: The SVG back-end is no longer maintained and may be removed in the future. Deprecated API usage: The SVG back-end is no longer maintained and may be removed in the future. Deprecated API usage: The SVG back-end is no longer maintained and may be removed in the future.
Chapter 1 : Accounting in Business
Importance of Accounting
● Accounting is an information and measurement system that identiûes, records, and communicates relevant, reliable, and comparable information about an organization’s business activities.
Users of Financial Information ● Accounting is called the language of business because all organizations set up an accounting information system to communicate data to help people make better decisions. Accounting serves many users who can be divided into two groups: external users and internal users.
Opportunities in Accounting ● Accounting information is in all aspects of our lives. When we earn money, pay taxes, invest savings, budget earnings, and plan for the future, we use accounting.
Ethics - A Key Concept ● The goal of accounting is to provide useful information for decisions. For information to be useful, it must be trusted. This demands ethics in accounting. Ethics are beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior.
Fraud Triangle ● Three factors must exist for a person to commit fraud: opportunity, pressure, and rationalization.
○ Objectives - to provide information useful to investors, creditors, and others. ○ Qualitative Characteristics - to require information that is relevant, reliable, and comparable. ○ Elements - to deûne items that ûnancial statements can contain. ○ Recognition and Measurement - to set criteria that an item must meet for it to be recognized as an element; and how to measure that element.
Principles and Assumptions of Accounting
● General principles are the basic assumptions, concepts, and guidelines for preparing ûnancial statements. General principles stem from long-used accounting practices. ● Speciûc principles are detailed rules used in reporting business transactions and events. Speciûc principles arise more often from the rulings of authoritative groups.
Accounting Principles ● Measurement Principle (or Cost Principle) ○ Accounting information is based on actual cost. Actual cost is considered objective. ● Revenue Recognition Principle ○ Recognize revenue when it is earned. ○ Proceeds need not be in cash.
○ Measure revenue by cash received plus cash value of items received. ● Expense Recognition Principle (or Matching Principle) ○ A company must record its expenses incurred to generate the revenue reported. ● Full Disclosure Principle ○ A company is required to report the details behind ûnancial statements that would impact users’ decisions.
Accounting Assumptions ● Going-Concern Assumption ○ Reüects assumption that the business will continue operating instead of being closed or sold. ● Monetary Unit Assumption ○ Express transactions and events in monetary, or money, units. ● Business Entity Assumption ○ A business is accounted for separately from other business entities, including its owner. ● Time Period Assumption ○ Presumes that the life of a company can be divided into time periods, such as months and years.
Proprietorship, Partnership, and Corporation ● Here are some major attributes of Proprietorships, Partnerships, and Corporations:
Financial Statements ● The four ûnancial statements and their purposes are: ○ (1) Income Statement - describes a company’s revenues and expenses along with the resulting net incomes or loss over a period of time due to earnings activities. ○ (2) Statement of retained earnings - explains changes in equity from net income (or loss) and from any dividends over a period of time. ○ (3) Balance Sheet - describes a company’s ûnancial position (types and amounts of assets, liabilities, and equity) at a point in time. ○ (4) Statement of Cash Flows - identiûes cash inüows (receipts) and cash outüows (payments) over a period of time.
Chapter 1 Accounting in Business
Course: Intermediate Accounting I (ACC 303)
University: Tarleton State University
- Discover more from:
