Chapter 1 - A Framework for
Financial Accounting
Tags
1.1 - Accounting as a Measurement/Communication
Process
Defining Accounting
What is accounting?
A system of maintaining records of a company's operations and
communicating that information to decision makers
"The language of business"
What is the difference between financial and managerial accounting?
Managerial accounting refers to accounting information provided for
internal users
Financial accounting refers to accounting information provided for external
users
What are the two functions of financial accounting?
To measure business activities of a company and then to communicate
those measurements to external parties for decision-making purposes
What decisions do investors make?
Relating to buying and selling their shares of a company's stock
What decisions do creditors make?
Relating to lending money to a company
Measuring Business Activities
Chapter 1 - A Framework for Financial Accounting 1
, What has the claims to a company's resources?
The investors and creditors
What is a corporation?
A company that is legally separate from its owners
Stockholders have limited liability
What is limited liability?
Prevents stockholders from being held personally responsible for the
financial obligations of the corporation
What is a sole proprietorship?
A business owned by one person
What is a partnership?
A business owned by two or more persons
What are two disadvantages of sole proprietorships or partnerships?
Owners must have sufficient personal funds to finance the business in
addition to the ability to borrow money
Neither offers limited liability
Owners (and partners) are held personally responsible for the activities
of the business
What is a disadvantage of a corporation?
What is double taxation?
A company first pays corporate income taxes on income and
stockholders then pay personal income taxes when the company
distributes that income as dividends to them
What are financing activities?
Include transactions a company has with investors and creditors
e.g. issuing stock and borrowing money
What are investing activities?
Chapter 1 - A Framework for Financial Accounting 2
Financial Accounting
Tags
1.1 - Accounting as a Measurement/Communication
Process
Defining Accounting
What is accounting?
A system of maintaining records of a company's operations and
communicating that information to decision makers
"The language of business"
What is the difference between financial and managerial accounting?
Managerial accounting refers to accounting information provided for
internal users
Financial accounting refers to accounting information provided for external
users
What are the two functions of financial accounting?
To measure business activities of a company and then to communicate
those measurements to external parties for decision-making purposes
What decisions do investors make?
Relating to buying and selling their shares of a company's stock
What decisions do creditors make?
Relating to lending money to a company
Measuring Business Activities
Chapter 1 - A Framework for Financial Accounting 1
, What has the claims to a company's resources?
The investors and creditors
What is a corporation?
A company that is legally separate from its owners
Stockholders have limited liability
What is limited liability?
Prevents stockholders from being held personally responsible for the
financial obligations of the corporation
What is a sole proprietorship?
A business owned by one person
What is a partnership?
A business owned by two or more persons
What are two disadvantages of sole proprietorships or partnerships?
Owners must have sufficient personal funds to finance the business in
addition to the ability to borrow money
Neither offers limited liability
Owners (and partners) are held personally responsible for the activities
of the business
What is a disadvantage of a corporation?
What is double taxation?
A company first pays corporate income taxes on income and
stockholders then pay personal income taxes when the company
distributes that income as dividends to them
What are financing activities?
Include transactions a company has with investors and creditors
e.g. issuing stock and borrowing money
What are investing activities?
Chapter 1 - A Framework for Financial Accounting 2
