Chapter 1 What is Accounting?

What is Accounting? Accounting is an information system that identifies, records, and communicates economic data of an enterprise to interested users. What are the two types of Interested Users of Accounting information? The two types of interested users are Internal users and External users. Give examples of Internal Users and External Users: Examples of Internal Users are: Marketing managers, production supervisors, finance directors, and company officers Examples of External Users are: Investors, Creditors, Taxing authorities, Regulatory agencies, Customers, Labor unions, and Economic planners. In What year did Luca Pacioli publish his Summa de Arithmetica? Luca Pacioli published his textbook in 1494. Who was a good friend of Pacioli? A good friend of Luca Pacioli was Leonardo DaVinci. What do we understand by Ethics? Ethics is the knowledge of what is right and wrong; it deals with a society’s morals. What are the three organizations that establish accounting rules and guidelines? The two organizations are FASB (Financial Accounting Standards Board), the SEC (The Securities and Exchange Commission, and the IRS. What is the Cost principle? The cost principle requires that Plant Assets be carried at the original price for which they were purchased. Therefore, the ledger for the asset cannot be changed, altered, or distorted. What are assets? Name at least 4 assets Assets are properties or resources owned by the business. Four examples of assets are: Cash, accounts receivable, supplies, and prepaid insurance. What are liabilities? Name at least one liability Liabilities are debts, obligations, or claims by creditors. In sum liabilities are what a company owes. What is Owner’s Equity? Name at least one Owner’s Equity account The owner’s equity is the residual amount or what is leftover for the owner after all the liabilities of a business are paid. Owner’s equity may also be defined as claims by the owner. An example of Owner’s Equity account is: R. Neal, Capital. What are the 4 activities that change the Owner’s Equity? They are (1) Investments of capital by the owner (2) Revenues (3) Expenses, and (4) Withdrawals by the Owner. What are the two rules of Bookkeeping? The two rules of Bookkeeping are: (1) Each transaction affects at least two accounts (2) In a journal entry the debits must always equal the credits. What is the difference between Bookkeeping and Accounting? Bookkeeping deals with the recording part of accounting, whereas Accounting deals with all three aspects: identification of transactions, recording, and communication. How many rules of Accounting are there? There are three rules of accounting. Rule of Accounting Number 1 for Assets: Increases in assets are recorded by debits to the asset accounts. Decreases in assets are recorded by credits to the asset account. Rule of Accounting Number 2 for Liabilities: Increases in liabilities are recorded by credits to the liability accounts. Decreases in liabilities are recorded by debits to the liability accounts. Rule of Accounting Number 3 for Owner’s Equity Increases in owner’s equity accounts are recorded by credits to the owner’s equity accounts. Decreases in owner’s equity accounts are recorded by debits to the owner’s equity accounts. How many financial statements are there? There four and only four financial statements: Balance Sheet, Income Statement, Statement of Owner’s Equity, and Statement of Cash Flows. How many sections does the balance sheet have? The Balance Sheet has three sections: Assets, liabilities, and owner’s equity How many sections does the income statement have?The income statement has three sections: Revenues, Expenses, and net income. What are revenues? Revenues are increases in owner’s equity. What are expenses? Expenses are decreases in owner's equity. What are transactions? Transactions are economic events of an enterprise that are recorded by accountants. A transaction must be expressed in dollars. What is net income Net income is the difference between revenues and expenses. It is also called the “Bottom Line.” Ch1 Accounting in Action Ch2 Recording Process Ch3 Adjusting the Accounts Ch4 Completing the Accounting Cycle Ch5 Merchandising Operations Ch6 Inventories Ch7 Accounting Information Systems Ch8 Internal Control and Cash Ch9 Accounting for Receivables Ch10 PP&E, Natural Resources, and Intangible Assets Ch11 Current Liabilities and Payroll Ch12 Partnerships Ch13 Corporations Ch14 Corporations:Dividends, RE Ch15 Long Term Liabilities Ch16 Investment Ch17 Statement of Cash Flows Ch18 Financial Statement Analysis Plato and Accounting Price/Earnings Ratio Plant Assets Luca Pacioli and DaVinci The secrets of 'no-doze' prose: Mary Duffy's Sentence Openers Image via Wikipedia Lindsey Vonn

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