Accounting

Internal

officers, managers, employees

External

lenders, shareholders, government, media, customers

Financial Accounting

the area of accounting aimed at external users;

GAAP

generally accepted accounting principles•

- The concepts & rules that govern financial accounting• Established by the FASB and/or the SEC

Revenue Recognition Principle

revenue must be recognized when EARNED

Expense Recognition or Matching Principle

a company must record expenses incurred against the revenues they helped to generate

ASSEST =

Liabilities + Equity

(The Accounting Equation)

Assets

what a company owns or has claim to (examples include cash, accounts receivable, inventory,supplies, prepaid insurance, land, building, equipment, etc)

Liabilities

what a company owes/ its debt (examples include accounts payable, taxes payable, notes payable, mortgage payable and UNEARNED REVENUE {getting paid in advance}

Equity

the claims of the owner(s) or what is left if we were to sell of all the assets and pay off all theliabilities; can be stated as Assets - Liabilities. For the sole proprietorship, equity is the owner's capital account but we are studying Corporations in this class therefore our Equity is comprised of CommonStock and Retained Earnings.

For each transaction atleast ________ accounts are affected

Two

The four financial statements

1. Income Statement (also known as the Statement of Profit or Loss)

2. Statement of Retained Earnings

3. Balance Sheet

4. Statement of Cash Flows

Income Statement

Revenues-

Expenses

Net Income (or Net Loss)

-If revenues are greater than expenses, the company will have net income. If the expenses are greaterthan revenue, it will generate a net loss

STATEMENT OF RETAINED EARNINGS

+Net Income (or - Net Loss)

-Dividends

Declared Ending

Retained Earnings

BALANCE SHEET

Assets = Liabilities + Stockholders' Equity

The balance sheet is the

Accounting Equation!!!

D IVIDENDS

E XPENSES

A SSETS

DEA accounts increase with DEBITS and decrease with CREDITS

C OMMON STOCK

L IABILITIES

R EVENEUS

CLR accounts increase with CREDIT and decrease with DEBIT

Deferred or Prepaid expenses

supplies, prepaid insurance, prepaid rent, fixed assetsAll these are asset accounts.