1. Introduction Flashcards
what is accounting (there are 4 key roles)
- accounting is the process of identifying, measuring, recording and communicating an organizations economic activities to users
what is the difference between internal and external users of accounting information
- internal users work for the organization and are responsible for operations
- external users dont work for the organization, like investors, creditors and customers
what is financial accounting
- the area of accounting that presents financial information of interest to external users
what is an organization
- a group of individuals who come together to pursue a common set of goals and objectives
what are the two types of orgs and what do they do
- business orgs: they sell products or services for profit
- non-business orgs: they exist to meet social needs and dont have profit as a goal, eg charities
what are the three most common forms of business orgs
- proprietorship
- partnership
- corporation
what is a proprietorship
- a business owned by one person
- it is not a separate legal entity, meaning the business and owner are considered the same
what is a partnership
- a business owned by two or more people
- it is not a separate legal entity
what is a corporation
- a business owned by one or more owners
- the owners are known as shareholders
what are shareholders and shares
- shareholders are entities who own shares of a corporation
- shares are units of ownership in a corporation
what is the difference between a publicly accountable enterprise and a private enterprise
- a publicly accountable enterprise is a corp whose shares can be publicly bought or sold on a stock exchange by any number of people
- a private enterprise is a crop whose shares are held privately by one or a few shareholders
what is the relationship between shareholders, the board of directors and the president of a corp
- shareholders elect the board of directors, usually annually
- the board of directors then appoint the president and other high ranking officials
what are the 6 qualities that financial information should posses, according to generally accepted accounting principles (GAAP)
- relevance
- faithful representation
- comparability
- verifiability
- timeliness
- understandability
what are the 4 types of financial statements
- income statement
- statement of changes in equity
- balance sheet
- statement of cash flows
what is the purpose of an income statement
- to communicate information about a business’s financial performance
- by summarizing revenues minus expenses over a period of time