ACCTG 201 Study Guide - Comprehensive Midterm Guide: Financial Accounting Standards Board, International Accounting Standards Board, Public Company Accounting Oversight Board

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7 Feb 2017
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ACCTG 201
MIDTERM EXAM
STUDY GUIDE
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Accounting as a Measurement/Communication Process
Defining Accounting
accounting a sste of aitaiig eods of a opa’s
operations and communicating that information to decision makers;
the laguage of usiess
accountants measure the activities of the company and
communicate those measurements to others
managerial accounting accounting information that is provided for
internal users (managers)
financial accounting accounting information provided to external
users
the two functions of financial accounting are (1) measure business
activities of the company and (2) communicate those measurements
to external parties for decision-making purposes
o investors and creditors make decisions about -> companies
whose activities are measured by -> accountants who then
communicate information back to -> investors and creditors who
use this information to make their decisions
investors want to make good decisions related to buying and selling
thei shaes of the opa’s stok
creditors make decisions related to lending money to the company
Measuring Business Activities
investors buy ownership in the company and have the right to share
i the opa’s pofits
o share = share of common stock
if you borrow $10,000 from the bank for your business, the bank is
your creditor
corporation a company that is legally separate from its owners
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2
limited liability prevents stockholders from being held personally
responsible for the financial obligations of the corporation
sole proprietorship a business owned by one person
partnership a business owned by two or more persons
disadvantages of sole proprietorships/partnerships
o owner(s) must have sufficient funds
o no limited liability
o owner(s) are held personally responsible for business activity
double taxation (1) the company pays corporate income taxes on its
income and (2) stockholders pay personal income taxes when the
company distributes that income as dividends to them
o this is what happens to corporation’s income
financing activities transactions the company has with investors and
creditors
o ex: issuing stock and borrowing money from a local bank
investing activities transactions involving the purchase and sale of
resources that are expected to benefit the company for several years
o ex: purchase of equipment for $24,000
operating activities transactions that relate to the primary
operations of the company, such as providing products and services to
customers and the associated costs of doing so
o ex: rent, salaries, utilities, taxes, advertising
assets, liailities, ad stokholdes’ euit
o assets resources of the company
o liabilities amounts owed to creditors
o stockholdes’ euity oes’ lais to esoues
o accounting equation illustrates a fundamental model of
business valuation
A = L + SE
A = resources
L + SE = claims to resources
revenues, expenses, and dividends
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