Chapter 1 Accounting
Accounting: a system identifies, records, and communicates business activities Recordkeeping/bookkeeping: the recording of transactions and events Financial accounting V.S. Managerial accounting External users V.S. Internal users Lenders=creditors Shareholders=investors=stockholders External auditors Nonmanagerial employees Regulators
Private accounting ]#i Public accounting: auditing, taxation, advisory services Data analytics: analyze data to identify relations and trends Data visualization: a graphic to understand the significance
GAAP-generally accepted accounting principles: relevance and faithful representation FASB-financial accounting standards board (FASB): given the task of setting GAAP SEC: a U.S. government agency oversees GAAP IASB-international accounting standards board IFRS-international financial reporting standards
GAAP general principles and specific principles General principles: 1. measurement principle/cost principle: i 2. revenue recognition principle : i 3. expense recognition principle/matching principle : #(i) eg: F 4.full disclosure principle : i#i, T Specific principles: 1. Going-concern assumption : [il#iz1] 2. Monetary unit assumption : 1iI 3. Time period assumption : K 4. Business entity assumption: sole proprietorship, partnership, corporation(# shareholders), limited liability company (LLC) Credit sales: a customer's promise to pay at a future date
A receivable K# is an asset that promises a future inflow of resources. #
payable to suppliers
Liabilities: creditors' claims on assets. equity=assets-liabilities
Equity
Assets = Liabilities + Contributed Capital+ Retained Earnings
= Liabilities + Common Stock -- Dividends + Revenues - Expenses
Contributed capital initial investment; Common stock=owner investments=stock issuances
Assets=cash+supplies+equipment accounts receivable-receipt of cash assets i, accounts payable I Receipt of cash T a revenue
External transactions: exchanges of value between two entities i+I Internal transactions: exchanges within an entity Ti+fI
Financial statements:
1. income statement: revenue-expenses=net income tAEanet loss Shareholders' investments and dividends TuA- Net income 1: provide services
2. Statement of retained earning: beginning retained earnings, net income, dividends #i] end retained earnings
3. Balance sheet: assets=liabilities+equity
balance sheet ]: common stock, equipment, accounts receivable balance sheet # supplies, cash, equipment, account payable
Operating:# expenses, , F, II #i account payable fi receivable Investing: [] equipments Financing: 3I, shareholders
Net income # earnings/profit Income statement ] Net income I] statement of retained earnings 1i] retained earnings #iJ balance sheet
Return on assets-ROA t4 return on investment-ROI: net income(M income statement )/average total assets
corporation 1 business income tax Corporation/LLCT debts Corporation
Limited Liability Company (LLC)
Number of owners 1 or more, called shareholders;can get many investors by selling stock or shares of corporate ownership.
1 or more, called members
Business taxation Additional corporate income tax.
No additional business income tax
Owner liability
Limited liability. Owners, called harehold not liable for corporate acts and debts
Limited liability.Owners,called members,are not
personally liable for LLC debts.
Legal entity
A separate entity with the same rights and respo person.
A separate entity with the same rights and
responsibilities as a person.
Business life
Indefinite.
Indefinite.
Sole Proprietorship
Partnership
Number of owners
1 owner easy to set up
2 or more, called partners;easy to set up.
Business taxation No additional business income tax.
No additional business income tax.
Owner liability
Jnlimited liability.Partners are jointly liable for par