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chapter 1
Welcome to the World
of Accounting
goals discussion
goals achievement
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multiple
choice
problems
check list and key terms
Following is a "checklist" of selected key concepts that are likely to be included on an exam. Review and check-off each noted item to be certain that important concepts have not been overlooked in your study.
Define accounting.
Identify five typical users of accounting information.
Distinguish between financial and managerial accounting.
Identify the private sector accounting standard setting body.
Distinguish between accounting and bookkeeping.
Differentiate between public and private accounting.
What are key areas of service within a public accounting firm?
What are specialized areas of work within private accounting?
Name selected governmental agencies that employ many accountants.
Name selected not-for-profit enterprises that employ accountants.
What are three typical business entity forms?
Define the principle of historical cost.
Define the objectivity principle.
Note the link between the historical-cost principle and objectivity.
Know the accounting equation, and mathematical variations of this equation (e.g., assets - liabilities = owner's equity).
Define and cite examples of assets and liabilities.
Define retained earnings and identify the elements that cause it to change.
Know that dividends are not an expense.
Distinguish between the terms revenue and net income.
Know how transactions impact the accounting equation.
Name the four basic financial statements.
Know the proper headings (with special attention to their dating) for the balance sheet, income statement, statement of retained earnings.
Describe how the basic financial statements interrelate.
KEY TERMS AND DEFINITIONS (with links to discussion in text)
| accounting | A set of concepts and techniques that are used to measure and report financial information about an economic unit. |
| accounting equation | A financial relationship at the heart of the accounting model: Assets = Liabilities + Owners' Equity |
| assets | The economic resources owned by an entity; entailing probable future benefits to the entity |
| auditing | The examination of transactions and systems that underlie an organization's financial statements with the goal or reporting thereon |
| balance sheet | A financial statement that presents a firm's assets, liabilities, and owners' equity at a particular point in time |
| certified public accountant (CPA) | An individual who is licensed by a state to practice public accounting |
| corporation | A form of business organization where ownership is represented by divisible units called shares of stock |
| dividends | Amounts paid from profits of a corporation to shareholders as a return on their investment in the stock of the entity |
| expenses | The costs incurred in producing revenues |
| financial accounting | An area of accounting that deals with external reporting to parties outside the firm; usually based on standardized rules an procedures |
| Financial Accounting Standards Board | An organization charged with producing standards for financial reporting in the USA (FASB) |
| financial statements | Core financial reports that are prepared to represent the financial position and results of operations of a company |
| historical cost principle | The concept that many transactions and events are to be measured and reported at acquisition cost |
| income statement | A financial statement that summarizes the revenues, expenses, and results of operations for a specified period of time |
| internal auditor | A person within an organization who reviews and monitors the controls, procedures, and information of the organization |
| liabilities | Amounts owed by an entity to others |
| managerial accounting | An area of accounting concerned with reporting results to managers and others who are internal to an organization |
| net income | The excess of revenues over expenses for a designated period of time |
| net loss | The excess of expenses over revenues for a designated period of time |
| owner investments | Resources provided to an organization by a person in exchange for a position of ownership in the organization |
| owners' equity | The residual of assets minus liabilities, representing the collective interest or position of the entity's owners |
| partnership | A non-corporation representing an association of two or more persons organized to carry out a business plan for a profit motive |
| public accounting | Accounting activities provided by a person to the general public, typically relating to audit, tax and similar services |
| retained earnings | The excess of a corporation's income over its dividends |
| revenue | Inflows and other benefits received in exchange for the providing of goods and services |
| sole proprietorship | A non-corporation business owned by a sole individual |
| statement of retained earnings | A financial statement that discloses changes in retained earnings during a designated period of time; those changes usually attributable to income and dividends |