Chapter 1
Introduction to Accounting
By Boundless
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Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers.
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Inputs into accounting include journal entries, the bookkeeping process, and the general ledger.
Accounting outputs are financial statements that detail the financial activities of a business, person, or other entity.
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Financial reporting is used by owners, managers, employees, investors, institutions, government, and others to make important decisions about a business.
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A conceptual framework is a system of ideas and objectives that lead to the creation of a consistent set standards.
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The objective of business financial reporting is to provide information that is useful for making business and economic decisions.
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In order to prepare the financial statements, it is important to adhere to certain fundamental accounting concepts.
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In accounting, recognition of revenues and expenses is based on the matching principle.
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A stakeholder is an individual or group that has a legitimate interest in a company.
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Activities of the business include operating activities and non-operating activities such as investing activities, and financing activities.
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The role of accounting in business is to help internal and external stakeholders make better business decisions by providing them with financial information.
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Business ethics is a form of applied ethics that examines ethical principles, moral/ethical problems that arise in a business environment.
The balance sheet is a summary of the financial balances of a company and reflects the company's solvency and financial position.
The income statement shows revenues and expenses for a specific period.
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The statement of retained earnings explains the changes in a company's retained earnings over the reporting period.
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The cash flow statement provides information on a firm's liquidity and solvency.
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The four main financial statements provide relevant financial information for internal and external users.
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Financial statement notes explain specific items in the financial statements.
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When an audit is performed on a company, the auditor issues a formal opinion in the form of an auditor report.
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The SEC enforces and regulates security laws, the AICPA dictates the professional conduct of accountants, and the FASB develops GAAP.
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Generally Accepted Accounting Principles (GAAP) is the standard framework for financial accounting used in any given jurisdiction.
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The IFRS is a common global financial language for business affairs that is understandable and comparable across international boundaries.
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A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.
The full disclosure principle states information important enough to influence decisions of an informed user should be disclosed.
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The process of disclosing financial statements is carried out through what is known as a Form 10-K.
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Events that trigger disclosure should be based on an accountant's assessment of materiality.
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Accountants must stay up to date with current issues in reporting and disclosures related to standards set by regulatory agencies.