Introduction - Lecture 1 Flashcards
What is accounting?
The process of identifying, measuring and communicating relevant economic information (business transactions) about the business to a variety of users for decision making.
What is the process of identifying?
Identifying transactions that are able to be reliably measured and recorded.
What is the process of measuring?
Analysing, recording and classifying transactions.
Putting them into numerical value
What is the process of communicating?
Communicating is putting the measured information into a way that can be viewed more easily.
Via income statements, balance sheets and statements of cash flow.
What is the process of decision making?
Decision making is what happens as a result of viewing the communicated information.
The status of the business is looked upon and it is decided where to go from there. Whether current business and it’s ways are working.
The communication is used for a range of decisions by external and internal users.
What is a process?
A series of actions or steps taken to achieve a desired ending.
What is the definition of entities?
Entities can be the parties in which transactions take place between.
What is the definition of assets?
What the business owns.
Examples:
- cash
- inventory
What are liabilities?
Liabilities are things that the business owes to other entities.
What is equity?
Equity is the difference between the value of the assets and the value of the liabilities of something owned
What is a business transaction?
A business transaction is the external exchange of something of value between two or more entities (one is the business firm).
- Can be reliably measured and recorded
- Affect assets, liabilities and equity
What is relevant information?
Information that makes a difference in decision making.
What is accounting information?
Data about a business entity’s transactions.
Special purpose reports
Financial statement or financial report that is prepared for a limited group of people to view.
General purpose report
A financial report or statement prepared for external users to view.
What are accounts receivable?
Anything that is owed to us
Why is financial accounting?
It is the type of accounting that deals with preparation of financial statements primarily for external parties.
- Has a lot of regulations (because it’s work is viewed by external parties)
- Statements prepared in accordance with Generally Accepted Accounting Principles
- Focus is on recording transactions and turning them into useful information
What is management accounting?
A type of accounting that is internally focused and generally only of use to the company.
- Preparing internal reports (special purpose reports) for management to assist with their decision making
- Not regulated by as many rules
What are Drawings?
Money that the owner takes out of the business in which is owed to them from their personal investments into the business
What are accounts receivable?
Accounts and other entities that owe the business money.
What is revenue (income)?
Amounts earned by a business - inflows into the business.
What are expenses?
Amounts incurred to earn income - outflows from the business
What is profit?
Profit is the result of the income minus the expenses. It is the money made and owed to the owner.
What are dividends?
A sum of money paid regularly by a company to its shareholders out of its profits (reserves).
