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Questions and Answers
Why is accounting called the language of business?
Why is accounting called the language of business?
The results of the accounting process - financial statements - communicate essential information about a business to concerned individuals and organizations.
What are financial statements?
What are financial statements?
Periodic reports that summarize the financial affairs of a business.
What are the names of three accounting job positions?
What are the names of three accounting job positions?
Clerk, bookkeeper, and accountant.
One requirement for becoming a CPA is to pass the:
One requirement for becoming a CPA is to pass the:
Which organization has the final say on financial accounting issues faced by publicly owned corporations?
Which organization has the final say on financial accounting issues faced by publicly owned corporations?
What type of information will the owner need to give to the bank to apply for a loan?
What type of information will the owner need to give to the bank to apply for a loan?
What are generally accepted accounting principles?
What are generally accepted accounting principles?
Why are generally accepted accounting principles needed?
Why are generally accepted accounting principles needed?
How are generally accepted accounting principles developed?
How are generally accepted accounting principles developed?
An organization that has two or more owners who are legally responsible for the debts and taxes of the business is a:
An organization that has two or more owners who are legally responsible for the debts and taxes of the business is a:
A nonprofit organization such as a public school is a:
A nonprofit organization such as a public school is a:
What are some of the advantages of the corporate form of business?
What are some of the advantages of the corporate form of business?
What are three types of business entities?
What are three types of business entities?
How is the ownership of a corporation different from that of a sole proprietorship?
How is the ownership of a corporation different from that of a sole proprietorship?
What is the purpose of accounting?
What is the purpose of accounting?
What does the accounting process involve?
What does the accounting process involve?
What is the purpose of the auditor's report?
What is the purpose of the auditor's report?
What are the three major areas of accounting?
What are the three major areas of accounting?
What types of services do public accountants provide?
What types of services do public accountants provide?
What is tax planning?
What is tax planning?
What are the major functions or activities performed by accountants in private industry?
What are the major functions or activities performed by accountants in private industry?
What are the three types of business entities, and how do they differ?
What are the three types of business entities, and how do they differ?
Why is it important for business records to be separate from the records of the business's owner or owners?
Why is it important for business records to be separate from the records of the business's owner or owners?
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Study Notes
Accounting Overview
- Accounting is referred to as the "language of business" because it communicates essential financial information through financial statements.
- Financial statements are periodic reports summarizing a business's financial affairs, essential for stakeholders.
Accounting Careers
- Common job positions in accounting include clerk, bookkeeper, and accountant.
- A Certified Public Accountant (CPA) must pass the Uniform CPA Examination.
Regulatory Framework
- The Securities and Exchange Commission (SEC) has the final authority on financial accounting for publicly owned corporations.
- Generally Accepted Accounting Principles (GAAP) are standards that evolve with changes in the business environment to ensure fair representation of a firm’s financial information.
Importance of GAAP
- GAAP is crucial for consistency and reliability in financial reporting, helping convey a company’s operating results and financial position accurately.
- The Financial Accounting Standards Board (FASB) establishes GAAP by proposing statements and gathering feedback from stakeholders.
Business Structures
- A partnership is an organization with two or more owners who are personally liable for business debts and taxes.
- A nonprofit organization, such as a public school, is classified as a social entity.
- Corporations offer advantages over partnerships, such as limited liability for shareholders and perpetual existence.
Types of Business Entities
- Business entities include sole proprietorships (owned by one), partnerships (owned by multiple), and corporations (which can be owned by one or many).
- Corporations are separate legal entities with rights to own property and conduct business independently of their owners.
Purpose and Process of Accounting
- The primary purpose of accounting is to gather and communicate financial information regarding a business.
- The accounting process includes recording, classifying, summarizing, interpreting, and communicating financial data.
Audit and Oversight
- The auditor’s report provides an independent opinion that financial statements fairly represent business performance, adhering to GAAP.
- Key areas in accounting include public, managerial, and governmental accounting.
Public Accountant Services
- Public accountants offer auditing, tax, and management advisory services, while providing tax planning advice to optimize financial affairs legally.
Roles of Private Accountants
- Accountants in private industry establish accounting policies, direct accounting systems, prepare financial statements, provide financial advice, and handle tax documentation.
Importance of Record Separation
- Keeping business and personal records separate is vital for measuring business performance, known as the separate entity principle.
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