1. Accounting Terminology
Finance Foundations
Chapter 12
Mrs. Sorrell

2. What is accounting?
Official language for business that provides information about a company’s financial position
Planning, recording, interpreting, and analyzing of financial information
Communicate the financial operations of all types of organizations

3. Three main categories of accounting?
Operating Information
Constitutes the greatest amount of accounting information
Payments—salaries, sales tracked, track payments, inventory accounted for, customer accounts
Financial Accounting Information
Used to make decisions involving the organization and the operations
Shareholders need information about what their investment is worth (buy or sell shares)
Managerial Accounting Information
Allows managers to plan, implement and control
Used to set budgets, analyze costs

4. Assets = Liabilities + Owner’s Equity Assets = own Liabilities = owe
Accounting Equation
Assets = Liabilities + Owner’s Equity
Assets = own
Liabilities = owe
Equity = the difference between the former two

5. United states generally accepted accounting principles
The Securities Exchange Commission has the authority to establish US GAAP.
They allow a series of private organizations to determine these
Currently, the FASB is the organization that has the authority to set accounting standards

6. Certified public accountants (CPA)
Act as advisors to individual, businesses, financial institutions, nonprofit organizations, and government agencies on a wide range of financial matters
Assist in preparing income taxes
Planning for personal finances such as retirement
Business owners rely on them for auditing services and advice on developing effective accounting systems, maximizing operating results, and resolving management issues
Assist in designing and installing data processing/management information systems

7. Aicpa OBJECTIVES Advocacy Certification and licensing Communications
National representative of CPAs before government, regulatory bodies, and other organizations in protecting and promoting members’ interests
Certification and licensing
Seeks the highest level of uniform certification and licensing standards
Communications
Promotes public awareness and confidence in the integrity, objectivity, competence, and professionalism of CPAs
Recruiting and education
Encourages highly qualified individuals to become CPAs
Standards and performance
Establishes professional standards; assists members in improving; and monitors performance

8. Basic Assumptions for us gaap
Entity Assumptions
Business is a separate entity from its owners
Going Concern Assumption
Expectations are that a business will remain in operation
Monetary Unit Assumptions
Accounting records show only the monetary security of the company
Time Period Assumption
Defines a specific period for which an entity’s reports are prepared

9. Principles for us gaap Cost Principle Matching Principle
Market value is difficult to determine, always record the purchase price of an asset
Matching Principle
Revenues and related expenses be recorded in the same accounting period
Revenue Recognition Principle
Revenues are recognized when earned
Disclosure Principle
Companies must include information that may impact decision of users of financial information

10. Constraints of us gaap Materiality Cost-Benefit Relationship
Only record events that are significant enough to justify the usefulness of the information
Cost-Benefit Relationship
Financial information provided by an organization is beneficial enough to justify the cost of preparing it
Consistency Principle
Once an entity adopts a method of accounting, they must use that same method for all subsequent events
Conservatism Principle
Select accounting methods that are least likely to overstate assets (revenues) an understate liabilities (expenses) in the current period