Introduction to Business Accounting

Flashcards from the Introduction to Business Accounting Video.

Introduction to Business Accounting

A foundational accounting course designed for non-accounting majors.

Managerial accounting information

Helpful for those working inside of corporations and institutions.

Financial accounting information

Helpful for those working outside of organizations, including stockholders, borrowers, lenders, regulators, and others.

Income statement

Shows how much income an organization had during a period.

Balance sheet

Shows what an organization owns and owes.

Cash flow statement

Shows how much cash an organization collected and used during an accounting period.

Incremental budgeting

Adjustments are made to historical results to budget for the future.

Zero-based budgeting

Organizational units start from a zero-base and must justify every expenditure they want to make in coming periods.

Cost, profit and investment centers

Determine how businesses hold managers of subunits responsible for their stewardships.

Cost types and behaviors

Fixed, variable, semivariable, product costs, and period costs.

Cost methodologies

Explains how businesses assign and accumulate product costs so they can make pricing and other decisions.

Cost-volume-profit analysis and break-even analysis

Used to examine how changes in costs, volume, and operating activity affect a company’s profitability.

Luca Pacioli

Developed a double-entry accounting system that provided a systematic, quantitative record of activity.

Securities Act of 1933

Congress passed to ensure that investors have financial and other critical information about securities (stocks and bonds) that are being issued to the public for the first time.

Securities Act of 1933

Requires companies to disclose information such as their assets, their financial health, and who their board members and senior executives are.

Securities Act of 1934

Created the Securities and Exchange Commission (SEC).

Sarbanes-Oxley Act of 2002

Requires corporate executives to implement risk management procedures.

Dodd-Frank Act

Passed in 2008 because of excessive risk-taking by financial institutions and a 2,600% increase in bank failures.

Financial Accounting Standards Board (FASB)

The private organization responsible for establishing the standards for financial accounting and reporting in the United States.

Securities Act of 1933

Requirements for companies to disclose relevant information about the company and provide a detailed description of newly issued securities to investors.

Securities Acts of 1933 and 1934

Regulatory environment for business and accounting are more regulated.

Financial accounting

External users or stakeholders for compliance, performance or other stewardship reasons is :

The income statement, the balance sheet, and the cash flow statement

There Are Three Primary Financial Statements:

Income statement

Examines the profitability of a business over a specific time period.

Balance sheet

Shows what a company owns (its assets), what it owes (its liabilities), and how much the owners’ interests in the company are (its owners’ equity).

Cash flow statement

Details a company’s inflows and outflows of cash from all sources—some from operations and some from financing and other activities.

Certified Public Accountant (CPA)

Professional accountants who have been granted the CPA designation by state boards of accountancy after meeting experience, education, work, and examination requirements.

Managerial accounting

Those inside the company that need accounting information that will help them make better planning, operating, evaluating, and pricing decisions internally.

Strategic planning

Long-run planning includes:

Compliance audits

To ensure adherence to local laws, government regulations, internal and external policies, and other compliance needs.

Integrity of accounting information

Financial statements must meet external and internal standards.

Risks

The SEC’s goal is to ensure that companies disclose all major:

Private company

99% of all corporations in the United States.

Corporation

Organization that combines resources, skills, capital, labor, and knowledge to provide goods and services to a market in pursuit of profit.

Initial Public Offering (IPO)

When a company’s ownership shares are traded on a public stock market for the first time.

Board of directors

A group of individuals elected by the stockholders to govern a corporation.

Shareholders (principals) own the company and managers (agents) are hired to operate the company on their behalf.

Principal-agent relationship

Agency problem

A conflict that arises when an agent (management), who is expected to act in the best interests of a principal (shareholders), has an incentive to act in their own best interest instead.

Encourages a company’s management to do what is right for the company

A system of corporate governance:

The Four Levels of Ethics

All business professionals and accountants should practice at four different levels.

Competition, legislation, nonprofit associations, lawsuits, boards of directors implement systems of corporate governance

How businesses are held accountable and encouraged to make ethical decisions due to:

Issue accounting standards and institute reporting.

The SEC has the authority to

Misappropriated over $8 billion from customers of FTX and Alameda

FTX

Alameda and FTX, including unreliable financial statements, mishandling of confidential data, and a lack of centralized control of company cash.

There Was Evidence Of Several Accounting Failures At:

Budget

A financial spending and income plan for a defined period that outlines how a firm, an organization, or an individual will acquire and use financial resources.

The Income and Cash Flow statements

By product of the budgeting process.

Period cost

For a company's personnel , the cost is:

Operating activities

Those Activities That A Company Does For A Living Are:

Cash from operating activities

The statement of cash flows always starts with which activity.

Nocash transactions

Are Transactions That Do Not Increase Or Decrease Cash.

Articulation

Refers to the relationship between an operating statement and comparative balance sheets:

Assets

The balance sheet tells readers what resources the company owns, which are called:

Liabilities

The balance sheet tells the readers about obligations , which are called:

Owners’ equity

The difference between assets and liabilities on the balance statement is:

A point in time

A summary of financial position on a summary sheet is:

Owners Equity

Shows what the owners’ interests in the business are.

Liquidity

How fast and easily they can be converted to cash.

Current assets

Those that can reasonably be converted into cash in one year.

Long-term liabilities

Those that are to be paid or satisfied after one year:

Owners’ equity

How much of the assets were funded by owner contributions and earnings that have not been returned to owners.

Balance sheet

A summary of all the financial positions of a company on a particular date.

Capital stock

The amount shareholders have paid into the business to be owners.

Retained earnings

The amount of profits (or earnings) owners have left in the business.

Assets

Economic resources that are owned or controlled by a company.

Revenues

Companies receive from the sale of goods and services.

Expenses

The costs incurred to support normal business operations and generate revenue.

Net income

It is calculated as the difference between revenues and all expenses.

Multi-step income statement

With the multiple-step format, the income statement is divided into separate sections.

Gross margin

The difference between sales and cost of sales (or cost of goods sold).

Pretax income

The difference between gross margin and total operating expenses.

Statement of cash flows

The company’s inflows and outflows of cash from all sources as the:

Operating activities

Are activities that are part of the day-to-day business of a company.

Investing activities

Are activities, that are associated with buying and selling long-term assets .

Financing activities

Those activities whereby cash is obtained from or repaid to owners and creditors.

The type of budgeting that involves beginning from scratch each budgeting period

Zero-based budgeting

Variance analysis

Can be higher/or lower than actual expenses, or can also include revenue numbers.

Revenue variances

Are The Differences Between Actual Revenues And Budgeted Revenues:

The Budget itself

There may be problems with:

Separate Job

Each product being produced is a:

budgets

Are to assist with making decisions, setting goals, and allocating resources

Incremental budgeting

It involves preparing budgets for the coming period by adjusting past budgets.

Budgeting

Business do this to help make better informed business decisions.

A corporation

A legal entity that is separate and distinct from its owners.

Governance

This will minimize the potential for management corruption.

A statement of cash flow

An entity’s inflows and outflows of cash during a period of time.

The balance sheet

Lists a company’s resources, liabilities, and owners’ equity.

They are prepared for a future period

All are forward-looking, meaning:

Manufacturing costs

Are all necessary to create finished goods ready for sale:

Each cost is justified

Will lead to lower and more efficient overall costs:

Laws and regulations

The regulatory environment of business and accounting stems from ethical actions that are regulated by:

Hard questions about a company’s current state

Zero-based budgeting is an appropriate time to ask: