Accounting Test 1-b

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1

The Purpose of Accounting

Provides financial information about the current operations and financial condition of a business to individuals, agencies, and organizations.

2

six major steps of the accounting process

1. Analyzing 2. Recording 3. Classifying 4. Summarizing 5. Reporting 6. Interpreting

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Looking at events that have taken place
and thinking about how they affect the
business.

Analyzing

4

Entering financial information about
events into the accounting system.

Recording

5

Sorting and grouping similar items
together rather than merely keeping a
simple, diary-like record of numerous events.

Classifying

6

The aggregation of many similar events
to provide information that is easy to
understand.

Summarizing

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Telling the results. Use of numbered
tables in accounting is common.

Reporting

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Deciding the meaning and importance of
the information in various reports.

Interpreting

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Developed by the Financial Accounting Standards Board (FASB), a private standard-setting body. Provides concepts and guidelines to be followed during the accounting process.

Generally Accepted Accounting Principles (GAAP)

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five steps for adopting a standard

1. The issue is placed on FASB's agenda.
2. A discussion memorandum is issued.
3. Public hearings are held around the country.
4. An exposure draft is issued.
5. A final statement of financial accounting
standards (SFAS) is issued.

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Three Types of Ownership Structures

Sole Proprietorship, Partnership, & Corporation

12

Sole Proprietorship

business is owned by one person, owner assumes all the risks for the business personally, & owner makes all of the business decisions.

13

Partnership

business is owned by more than one person, Partners assume all the risks for the business personally, Owners share risks and decision making & Partners may disagree about the way the business should be run.

14

Corporation

business is owned by stockholders, Corporations usually employ professional managers, Owners’ risks are limited to their initial investment, & publicly owned corporations, shareholders often have very little influence on business decisions.

15

Types of Businesses

service business, merchandising business, & manufacturing business

16

service business

provides a service

17

merchandising business

buys a product from another business to sell to customers.

18

manufacturing business

makes a product to sell.