Financial accounting
Chapter 1
Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers
Pathways Vision model economic activities review, create useful information
Financial Accounting
The field of accounting that focuses on providing information for external decision makers
Certified Public Accountants (CPAs) Licensed professional accountants who serve the
general public
Chartered Global Management Accountant (CGMA) Professional accountant with
advanced knowledge in finance, operations, strategy, and management
Certified Management Accountants (CMAs) Professional accountants who specialize in
accounting and financial management knowledge
Certified Financial Planner (CFP) Certified professional who specializes in budgeting,
planning for retirement, and managing finances.
Financial Accounting Standards Board (FASB) The private organization that oversees the
creation and governance of accounting standards in the United States
Securities and Exchange Commission (SEC) U.S. governmental agency that oversees
the U.S. financial markets
,Generally Accepted Accounting Principles (GAAP) Accounting guidelines, currently
formulated by the Financial Accounting Standards Board (FASB); the main U.S. accounting
rule book
Faithful Representation Providing information that is complete, neutral, and free from error
Economic Entity Assumption An organization that stands apart as a separate economic
unit
Sole Proprietorship A business with a single owner
Partnership A business with two or more owners and not organized as a corporation
Corporation A business organized under state law that is a separate legal entity
Limited-Liability Company (LLC) A company in which each member is only liable for his or
her own actions
Cost Principle A principle that states that acquired assets and services should be recorded
at their actual cost
Going Concern Assumption Assumes that the entity will remain in operation for the
foreseeable future
Monetary Unit Assumption The assumption that requires the items on the financial
statements to be measured in terms of a monetary unit
International Financial Reporting Standards (IFRS) A set of global accounting guidelines,
formulated by the International Accounting Standards Board (IASB)
,International Accounting Standards Board (IASB) The private organization that oversees
the creation and governance of International Financial Reporting Standards (IFRS).
Audit An examination of a company’s financial statements and records.
Sarbanes-Oxley Act (SOX) Requires management to review internal control and take
responsibility for the accuracy and completeness of their financial reports
Public Company Accounting Oversight Board (PCAOB) Monitors the work of
independent accountants who audit public companies
Accounting Equation —> assets = liability + equity
Assets Economic resources that are expected to benefit the business in the future and
something the business owns or has control of
Liabilities Debts that are owed to creditors
difference between Accounts Receivable (assets), and the. Accounts Payable (liabilty)
, - An easy way to remember the distinction between these two accounts involves the
words Receivable and Payable. A receivable involves a future receipt of cash. A
payable involves a future payment of cash.
Equity The owners’ claims (Ansprüche) to the assets of the business
Services rendered = services revenue
Contributed Capital Owner contributions to a corporation.
1. Common Stock Represents the basic ownership of a corporation.
Retained Earnings Equity earned by profitable operations of a corporation that is not
distributed to stockholder
1. Dividend A distribution of a corporation’s earnings to stockholders
2. Revenues Amounts earned from delivering goods or services to customers.
3. Expenses The costs of selling goods or services.
Net Income The result of operations that occurs when total revenues are greater than total
expenses NR>NE
Net Loss The result of operations that occurs when total expenses are greater than total
revenues TE>TE
Differentiation Prepaid Rent (asset), Rent Payable (liability), Rent Revenue (equity), and
Rent Expense (equity):
Prepaid Rent represents a prepayment of cash for renting a building in the future. Rent
Payable represents a debt owed for renting a building currently
Rent Expense represents the cost of renting a building currently
Rent Revenue, on the other hand, relates to the earning of revenue related to renting the
building to a tenant currently
Chapter 1
Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers
Pathways Vision model economic activities review, create useful information
Financial Accounting
The field of accounting that focuses on providing information for external decision makers
Certified Public Accountants (CPAs) Licensed professional accountants who serve the
general public
Chartered Global Management Accountant (CGMA) Professional accountant with
advanced knowledge in finance, operations, strategy, and management
Certified Management Accountants (CMAs) Professional accountants who specialize in
accounting and financial management knowledge
Certified Financial Planner (CFP) Certified professional who specializes in budgeting,
planning for retirement, and managing finances.
Financial Accounting Standards Board (FASB) The private organization that oversees the
creation and governance of accounting standards in the United States
Securities and Exchange Commission (SEC) U.S. governmental agency that oversees
the U.S. financial markets
,Generally Accepted Accounting Principles (GAAP) Accounting guidelines, currently
formulated by the Financial Accounting Standards Board (FASB); the main U.S. accounting
rule book
Faithful Representation Providing information that is complete, neutral, and free from error
Economic Entity Assumption An organization that stands apart as a separate economic
unit
Sole Proprietorship A business with a single owner
Partnership A business with two or more owners and not organized as a corporation
Corporation A business organized under state law that is a separate legal entity
Limited-Liability Company (LLC) A company in which each member is only liable for his or
her own actions
Cost Principle A principle that states that acquired assets and services should be recorded
at their actual cost
Going Concern Assumption Assumes that the entity will remain in operation for the
foreseeable future
Monetary Unit Assumption The assumption that requires the items on the financial
statements to be measured in terms of a monetary unit
International Financial Reporting Standards (IFRS) A set of global accounting guidelines,
formulated by the International Accounting Standards Board (IASB)
,International Accounting Standards Board (IASB) The private organization that oversees
the creation and governance of International Financial Reporting Standards (IFRS).
Audit An examination of a company’s financial statements and records.
Sarbanes-Oxley Act (SOX) Requires management to review internal control and take
responsibility for the accuracy and completeness of their financial reports
Public Company Accounting Oversight Board (PCAOB) Monitors the work of
independent accountants who audit public companies
Accounting Equation —> assets = liability + equity
Assets Economic resources that are expected to benefit the business in the future and
something the business owns or has control of
Liabilities Debts that are owed to creditors
difference between Accounts Receivable (assets), and the. Accounts Payable (liabilty)
, - An easy way to remember the distinction between these two accounts involves the
words Receivable and Payable. A receivable involves a future receipt of cash. A
payable involves a future payment of cash.
Equity The owners’ claims (Ansprüche) to the assets of the business
Services rendered = services revenue
Contributed Capital Owner contributions to a corporation.
1. Common Stock Represents the basic ownership of a corporation.
Retained Earnings Equity earned by profitable operations of a corporation that is not
distributed to stockholder
1. Dividend A distribution of a corporation’s earnings to stockholders
2. Revenues Amounts earned from delivering goods or services to customers.
3. Expenses The costs of selling goods or services.
Net Income The result of operations that occurs when total revenues are greater than total
expenses NR>NE
Net Loss The result of operations that occurs when total expenses are greater than total
revenues TE>TE
Differentiation Prepaid Rent (asset), Rent Payable (liability), Rent Revenue (equity), and
Rent Expense (equity):
Prepaid Rent represents a prepayment of cash for renting a building in the future. Rent
Payable represents a debt owed for renting a building currently
Rent Expense represents the cost of renting a building currently
Rent Revenue, on the other hand, relates to the earning of revenue related to renting the
building to a tenant currently
