Accounting Basics and Users 챕터1

Accounting Activities & Users

• Accounting consists of three core activities: identifying, recording, and communicating economic events.
• Internal users utilize management accounting for decision-making, such as marketing, production, and finance managers.
• External users rely on financial accounting, including investors and creditors, for their decision-making.

Building Blocks of Accounting

• Ethics in financial reporting is crucial for trust and transparency.
• Accounting principles and assumptions provide a framework for creating consistent and comparable financial information.
• The historical cost principle dictates that companies record assets at their cost and use that cost in subsequent periods.

The Accounting Equation

• The accounting equation is the foundation of accounting: Assets = Liabilities + Equity.
• Assets are resources owned by a business.
• Liabilities represent sources of financing from creditors, indicating existing debts and obligations.
• Equity represents the ownership claim on the company's assets.

Equity Components

• Share capital is the amount paid by shareholders when purchasing shares.
• Revenues are the gross increases in equity stemming from business activities aimed at generating income.
• Expenses are the cost of assets consumed or services used in the process of earning revenue.
• Dividends are distributions of cash or other assets to shareholders and are not considered expenses.

Analyzing Business Transactions

• The accounting information system collects and processes transaction data, communicating financial information to decision-makers.
• Transaction analysis involves assessing the effects on the accounting equation and specific types of items within each component.
• Share capital and Retained Earnings columns indicate the causes of changes in the shareholders' claim on assets.

Financial Statements

• The five primary financial statements are:
  • Income statement: Presents revenues and expenses, indicating net income or net loss for a specific period.
  • Retained earnings statement: Summarizes changes in retained earnings over a specific period.
  • Statement of financial position: Reports a company's assets, liabilities, and equity at a specific date.
  • Statement of cash flows: Summarizes the cash inflows (receipts) and outflows (payments) for a specific period.
  • Comprehensive income statement: Outlines other comprehensive income items not included in net income calculations.

Income Statement

• The income statement presents revenues first, followed by expenses, ending with net income (or net loss).
• Net income occurs when revenues exceed expenses, while a net loss occurs when expenses exceed revenues.
• Investment and dividend transactions between shareholders and the business are not included in net income calculations.

Retained Earnings Statement

• This statement highlights the reasons for changes in retained earnings during a period.
• If a net loss occurs, it is deducted along with dividends in the retained earnings statement.
• The statement begins with the beginning retained earnings amount.

This quiz covers the core activities of accounting, the different types of users such as internal and external, and the key principles that govern financial reporting. You'll also explore the fundamental accounting equation and its components. Test your knowledge of accounting essentials!