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Accounting Business Administration
ACC 211

The  Business  Opera▯ng  Cycle 1. Purchase  parts  and  labor 2. Manufacture  Products  or  Supplies  on  Credit 3. Pay  Suppliers 4. Sell/Deliver  products  or  provide  service  to  customers  on  credit 5. Collect  cash  from  customers  and  pay  creditors The  Accoun▯ng  System 1. Financial  Accoun▯ng  Reports a. External  Decision  Makers:  investors,  creditors,  suppliers,  clients 2. Managerial  Accoun▯ng  Reports  (performance  and  plans) a. Internal  Decision  Makers:  managers Four  Financial  Statements 1. Balance  Sheet a. Assets  =  Liabili▯es  (from  creditors)  +  Stockholders’  Equity i. Assets:  economic  resource  with  probable  future  benefits 1. Cash 2. Short-­‐Term  Investment 3. Accounts  Receivable 4. Notes  Receivable 5. Trade  Receivable:  amounts  owed  to  business  for  credit  sales  of  goods  or  services 6. Nontrade  Receivable:  amounts  owed  to  business  for  other  than  business  transac▯ons 7. Inventory 8. Supplies 9. Prepaid  Expenses 10.Long-­‐Term  Investments 11.Equipment 12.Buildings 13.Land 14.Intangibles ii. Liabili▯es:  probable  future  sacrifices  of  economic  resources 1. Accounts  Payable 2. Accrued  Expenses 3. Notes  Payable 4. Taxes  Payable 5. Unearned  Revenue 6. Bonds  Payable iii.Stockholders’  Equity:  financing  provided  by  owners  and  business  opera▯ons 1. Contributed  Capital  (common  stock) 2. Retained  Earnings 2. Income  Statement  [Net  Income  goes  to  Statement  of  Retained  Earnings],  Contains  EPS a. Revenues  -­‐  Expenses  =  Net  Income i. Revenues:  increase  in  assets/se▯lement  of  liabili▯es  of  ongoing  opera▯ons,  Recorded  when  cash  is  received 1. Sales  Revenue 2. Fee  Revenue 3. Interest  Revenue ii. Expenses:  decrease  in  assets  or  increase  in  liabili▯es  from  ongoing  opera▯ons,  Recorded  when  cash  is  paid 1. Cost  of  Goods  Sold 2. Wages  Expense 3. Rent  Expense 4. Interest  Expense 5. Deprecia▯on  Expense 6. Adver▯sing  Expense 7. Insurance  Expense 8. Repair  Expense 9. Income  Tax  Expense 3. Statement  of  Retained  Earnings  [Ending  Retained  Earnings  goes  to  Stockholders’  Equity  in  Balance  Sheet] a. Beginning  Retained  Earnings  +  Net  Income  -­‐  Dividends  =  Ending  Retained  Earnings 4. Statement  of  Cash  Flows  [Ending  Cash  Balance  goes  to  Cash  in  Balance  Sheet] a. Opera▯ng  Ac▯vi▯es b. Inves▯ng  Ac▯vi▯es i. Purchasing  long-­‐term  assets  and  investments  for  cash ii. Selling  long-­‐term  assets  and  investments  for  cash iii.Lending  cash  to  others iv.Receiving  principal  payments  on  loans  made  to  others c. Financing  Ac▯vi▯es i. Borrowing  cash  from  banks ii. Repaying  the  principal  on  borrowings  from  banks iii.Issuing  stock  for  cash iv.Repurchasing  stock  with  cash v. Paying  cash  dividends Players  in  Accoun▯ng  Communica▯on  Process I. Regulators:  Standard  Se▯ng  and  Verifica▯on A. Securi▯es  and  Exchange  Commission  (SEC):  Determines  measurement  rules  for  financial  statements  known  as   GAAP;  Protects  investors  and  maintains  integrity  of  securi▯es  market 1. Securi▯es  Act  of  1933 2. Securi▯es  and  Exchange  Act  of  1934 II. Public  Company  Accoun▯ng  Oversight  Board  (PCAOB):  Set  Audi▯ng  Standards  for  CPAs  of  Public  Companies III. Financial  Accoun▯ng  Standards  Board  (FASB):  Accoun▯ng  Standards A. Set  Generally  Accepted  Accoun▯ng  Principles  (GAAP) 1. Requires  Accrual  Accoun▯ng:  assets,  liabili▯es,  revenues,  expenses  are  recognized  when  transac▯on  occurs IV. Stock  Exchanges:  Set  Corporate  Governance  Standards  with  State  Governments V. Auditors  (CPAs):  Verifica▯on  of  fairness  of  financial  statements A. Partners,  managers,  staff  auditors VI. Board  of  Directors:  Oversight  of  company’s  accoun▯ng,  financial  repor▯ng A. Audit  commi▯ees  (independent  directors) 1. Hire  company’s  independent  auditors VII. Management:  Primary  Responsibility  for  informa▯on  in  financial  statements  and  disclosures A. CEO,  CFO,  accoun▯ng  staff Management  Responsibility  for  Financial  Informa▯on I. To  ensure  accuracy: A. Maintain  a  system  of  controls B. Hire  outside,  independent  auditors 1. CPAs  must  adhere  to  a  professional  code  of  ethics:  American  Ins▯tute  of  Cer▯fied  Public  Accountants a) Examine  reports  to  ensure  compliance  with  GAAP b) Examine  underlying  transac▯ons c) Express  opinion  of  fairness  of  statements 2. PCAOB  details  audi▯ng  standards C. Form  a  commi▯ee  of  the  board  of  directors  to  review  these  two  safeguards Conceptual  Framework  of  Financial  Reports I. Qualita▯ve  Characteris▯cs A. Primary  Characteris▯cs 1. Relevant:  predic▯ve  value,  feedback  value,  and  ▯meliness a) Impacts  decisions 2. Reliable:  verifiability,  representa▯onal  faithfulness,  and  neutrality a) Dependable B. Secondary  Characteris▯cs 1. Consistent:  across  companies 2. Comparable:  over  ▯me Balancing  the  Accoun▯ng  Equa▯on 1. Iden▯fy  and  classify  accounts  and  effects 2. Verify  equa▯on  is  in  balance Accoun▯ng  cycle 1. New  Period 2. During  the  Period a. Analyze  transac▯ons b. Record  journal  entries c. Post  amounts  to  general  ledger 3. End  of  Period a. Prepare  a  trial  balance,  do  debits  equal  credits? i. Unadjusted  Trial  Balance 1. Lis▯ng  of  Individual  accounts  in  financial  statement  order 2. Ending  debit/credit  balance  are  listed  in  two  separate  columns 3. Total  debit  account  balances  should  equal  total  credit  account  balances b. Adjust  revenues  and  expenses  and  related  balance  sheet  accounts i. Record  in  journal  and  post  to  ledger c. Prepare  a  complete  set  of  financial  statements d. Close  revenues,  gains,  expenses,  and  losses  (Net  Income/Net  Loss)  from  Income  Statement  to  Retained  Earnings i. Reduce  all  Income  Statement  Accounts  (temporary  accounts)  to  zero  balance ii. Record  in  journal  and  post  to  ledger Keeping  Track  of  Account  Balances 1. General  Journal a. where  the  entries  are 2. General  Ledger a. where  everything  resides 3. T-­‐Accounts a. Debits  on  le▯,  credits  on  right Current  Ra▯o  (Measures  Liquidity):  Current  Assets                    Current  Liabili▯es Revenue  Principle:  [Unearned  Revenue] I. Recognize  Revenues  when... A. Delivery  has  occurred  or  services  have  been  rendered B. There  is  persuasive  evidence  of  an  arrangement  for  customer  payments C. Price  is  fixed  or  determinable D. Collec▯on  is  reasonably  assur
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