ACCT 201 (Parker) Chapter 1

First Lecture of ACCT 201

Accounting

An information system that identifies, records, and communicates relevant, reliable, and comparable financial information that helps users make better decisions. (The language of business)

Financial Accounting

Focused on the needs of external users.

Managerial Accounting

Focused on the needs of internal users.

Generally Accepted Accounting Principles (GAAP)

Measurement rules established by the Financial Accounting Standards Board (FASB).

Assets

Things you own.

Liabilities

Things you owe.

Equity

Ownership in the context of a business.

Revenue

Money generated from normal operations.

Expenses

Costs incurred during normal operations.

Net Income

Revenue minus Expenses.

Historical Cost Concept

Requires that assets be reported at the amount paid for them, regardless of increases in market value.

Double-entry bookkeeping

An accounting method where each transaction is recorded in at least two places to ensure accuracy.

Retained Earnings

The cumulative amount of net income retained in the business after dividends are paid.

Dividends

Payments made to shareholders from a corporation's earnings.

Financial Statements

Reports that summarize the financial position and performance of a business, including Income Statement, Balance Sheet, and Statement of Cash Flows.

Accounting Cycle

The series of steps taken to record and process financial transactions.

Closing Process

The procedure of transferring net income (or loss) and dividends to Retained Earnings and setting revenue, expense, and dividend accounts to zero.

Owner’s Equity

The owner's claim on the assets of the business.

Asset Source Transactions

Transactions that increase total assets.

Asset Use Transactions

Transactions that decrease total assets.

Asset Exchange Transactions

Transactions that involve trading one asset for another without affecting total assets.

Accrual Accounting

An accounting method that recognizes revenue and expenses when they are incurred, regardless of when cash is exchanged.

Cash Accounting

An accounting method that recognizes revenue and expenses only when cash is exchanged.

Financial Ratios

Calculations that assess the financial performance of a business, such as liquidity ratios, profitability ratios, and leverage ratios.

Break-even Analysis

The process of determining the point at which total revenue equals total costs, resulting in no net loss or gain.

Budgeting

The process of creating a plan to spend your money, outlining expected revenues and expenses.

Variance Analysis

The process of comparing actual financial performance to budgeted expectations to determine deviations.

Accounts Receivable

Money owed to a business by its customers for goods or services provided.

Accounts Payable

Money a business owes to suppliers for goods or services received.

Inventory

The raw materials, work-in-progress products, and finished goods that a business holds for the purpose of resale.

General Ledger

A complete record of all financial transactions over the life of a company, including accounts for assets, liabilities, equity, revenue, and expenses. It serves as the primary source for financial statements, with entries made in the form of debits and credits.

Gross Profit

Revenue minus Cost of Goods Sold (COGS), representing the profit a company makes after deducting the costs directly associated with producing its goods or services.

What is FASB?

FASB stands for the Financial Accounting Standards Board, which sets accounting standards in the U.S.

What are Generally Accepted Accounting Principles (GAAP)?

Measurement rules established by the Financial Accounting Standards Board (FASB) for financial reporting.