Accounting
a system of analyzing, recording, and summarizing the results of a business's activities and then reporting the results to decision makers.
managerial accounting reports
include detailed financial plans and continually updated reports about the operating performance of the company.
financial accounting reports
accounting reports that summarize the financial results of business and financing activities
creditors
anyone to whom money is owed
basic accounting equation
assets = liabilities + stockholders' equity
liabilities
measurable amounts that the company owes to creditors.
revenues
earned by selling goods or services to customers
expenses
all costs of doing business that are necessary to earn revenues
net income
calculated as revenues minus expenses
dividends
distribution of retained earnings to stockholders
four accounting reports
income statement, statement of retained earnings, balance sheet, statement of cash flows
income statement
reports the amount of revenues less expenses for a period of time
accounts
accumulate and report the effects of each different business activity
statement of retained earnings
reports the way that net income and the distribution of dividends affected the financial position of the company during the period
balance sheet
reports the amount of assets, liabilities, and stockholder's equity of a business at a point in time.
cost principle
assets are initially reported on the balance sheet based on their original cost to the company.
statement of cash flows
reports the operating, investing, and financing activities that caused increases and decreases in cash during the period.
generally accepted accounting principles (GAAP)
rules of accounting created by the financial accounting standards board for sue in the united states
international financial reporting standards (IFRS)
rules of accounting created by the international accounting standards board for international use
ethics
standards of conduct for judging right from wrong, honest from dishonest, and fair from unfair.
sarbanes-oxley act (sox)
a set of laws established to strengthen corporate reporting in the united states
unit of measurment
measurement of information about a business in the monetary unit (dollars or other national currency)
private company
a company that sells shares of its stock privately and is not required to release its financial statements to the public
corporation
an incorporated business that issues shares of stock as evidence of ownership
investing activities
buying and selling productive resources with long lives
financing activities
transactions with lenders (borrowing and repaying cash) and stockholders (selling company stock and paying dividends)
operating activities
activities directly related to running the business to earn profit
public company
a company that has its stock bought and sold by investors on established stock exchanges
separate entity
the financial reports of a business are assumed to include the results of only that business's activities
comparability
financial info that can be compared across businesses because similar accounting methods have been applied
relevance
a feature of financial info that allows it to influence a decision
faithful representation
financial information that depicts the economic substance of business activities