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CHAPTER #17 - Coggle Diagram
CHAPTER #17
Accounting Disciplines
How does managerial accounting differ from financial accounting?
Managerial accounting provides information and analyses to managers within the firm to assist them in decision making. Financial accounting provides information and analyses to external users of data such as creditors and lenders.
What is the job of an auditor?
Auditors review and evaluate the standards used to prepare a company’s financial statements. An independent audit is conducted by a public accountant and is an evaluation and unbiased opinion about the accuracy of a company’s financial statements.
What is the difference between a private accountant and a public accountant?
A public accountant provides services for a fee to a variety of companies, whereas a private accountant works for a single company. Private and public accountants do essentially the same things with the exception of independent audits. Private accountants do perform internal audits, but only public accountants supply independent audits.
The Accounting Cycle
What are the six steps of the accounting cycle?
The six steps of the accounting cycle are:
(1) analyzing documents
(2) recording information into journals
(3) posting that information into ledgers
(4) developing a trial balance
(5) preparing financial statements— the balance sheet, income statement, and statement of cash flows
(6) analyzing financial statements.
What is the difference between bookkeeping and accounting?
Bookkeeping is part of accounting and includes the systematic recording of data. Accounting includes classifying, summarizing, interpreting, and reporting data to management.
What are journals and ledgers?
Journals are the first place bookkeepers record transactions. Bookkeepers then summarize journal entries by posting them to ledgers. Ledgers are specialized accounting books that arrange the transactions by homogeneous
groups.
Understanding Key Financial Statements
What is an income statement?
An income statement reports revenues, costs, and expenses for a specific period of time (say, the year ended December 31, 2015). The formulas we use in preparing the income statement are:
Revenue - Cost of goods sold = Gross margin
Gross margin - Operating expenses = Net income before taxes
Net income before taxes - Taxes = Net income (or net loss)
What is a
balance sheet?
A balance sheet reports the financial position of a firm on a particular day. The fundamental accounting equation used to prepare the balance sheet is Assets= Liabilities + Owners’ equity.
What is a statement of cash flows?
Cash flow is the difference between cash receipts (money coming in) and cash disbursements (money going out). The statement of cash flows reports cash receipts and disbursements related to the firm’s major activities:
operations, investments, and financing.
What are the major accounts of the balance sheet?
Assets are economic resources owned by the firm, such as buildings and machinery. Liabilities are amounts the firm owes to creditors, bondholders and others. Owners’ equity is the value of everything the firm owns—its assets—minus any liabilities; thus, Owners’ equity= Assets - Liabilities.
The Role of Accounting Information
What is accounting?
Accounting is the recording, classifying, summarizing, and interpreting of financial events and transactions that affect an organization. The methods we use to record and summarize accounting data into reports are called
an accounting system.
Analyzing Financial Performance Using Ratios
What are the four key categories of ratios?
The four key categories of ratios are liquidity ratios, leverage (debt) ratios, profitability (performance) ratios, and activity ratios.
What is the major value of ratio analysis to the firm?
Ratio analysis provides the firm with information about its financial position in key areas for comparison to other firms in its industry and its own past performance.