The Financial Accounting and Its Environment

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Financial accounting provides information to decision makers who are external to the business. Examples include present and future shareholders, present and future creditors, and government regulators. Managerial accounting provides information to decision makers who are internal to the business. This information is not published to people outside of the business

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Nội dung Text: The Financial Accounting and Its Environment

Financial Accounting and Its Environment Chapter 1
Major Types of Accounting • Financial accounting provides information to decision makers who are external to the business. – Examples include present and future shareholders, present and future creditors, and government regulators.
Major Types of Accounting • Managerial accounting provides information to decision makers who are internal to the business. – This information is not published to people outside of the business.
Major Types of Accounting • Tax accounting involves tax compliance and tax planning. – Tax compliance involves the calculation of the company's tax liability after the transactions for a year have been completed.
Major Types of Accounting • Tax accounting involves tax compliance and tax planning. – Tax planning involves the consideration of a transaction before it has taken place in order to determine tax consequences.
Major Types of Accounting • Accounting Information Systems – The processes and procedures required to generate accounting information.
Major Types of Accounting • Nonbusiness Organization Accounting – Deals with the accounting needs of organizations which do not attempt to earn a profit, such as hospitals, colleges, and churches.
Overview of Financial Accounting Past Financial Transactions and Accounting Other Economic Process Events Financial Decision Statements Makers
The Financial Accounting Process • Categorize past transactions and events. • Measure attributes of those transactions and events. • Record and summarize the measurements.
The Financial Accounting Process • The initial valuation of a transaction is generally not changed in the future. – This original measurement is called the historical cost.
Primary Financial Statements • The end result of the accounting process is the preparation of the following: – Balance sheet – Income statement – Statement of cash flows
The Balance Sheet • The balance sheet shows a firm's assets, liabilities, and owners' equity at one point in time.
The Balance Sheet • Assets are valuable resources that a firm owns. • Liabilities are obligations to convey something of value in the future.
The Balance Sheet • Owners' equity is a residual amount, calculated by subtracting liabilities from assets. – If assets are $300 and liabilities are $50, then owner's equity must equal $250.
The Balance Sheet Assets Liabilities and Owners’ Equity Cash 5,000 Liabilities Accounts receivable 7,000 Accounts payable 8,000 Inventory 10,000 Notes payable 2,000 Equipment 7,000 Total liabilities 10,000 Owners’ equity 19,000 Total assets 29,000 Total liabilities and owners’ equity 29,000
The Income Statement • The income statement summarizes a firm's revenues and expenses for a period of time.
The Income Statement • Revenues are inflows of assets from providing goods and services to customers. • Expenses are the costs incurred to generate revenues.
The Income Statement • If revenues exceed expenses, then the result is net income. • If expenses exceed revenues, then the result is a net loss. – If expenses are $500 and revenues are $400, then there is a net loss of $100.
The Income Statement Revenues Sales 63,000 Expenses Cost of goods sold 35,000 General and administrative 20,000 Tax 3,000 Total expenses 58,000 Net income 5,000
The Statement of Cash Flows • The statement of cash flows summarizes a firm's inflows and outflows of cash over a period of time.