Business 101 Chapter 8

Owners want to know whether their firm made a profit or suffered a loss. Creditors want to make sure that the firm has the capacity to repay any loans they made. Employees want to know whether their company is performing well enough to provide job security and a good raise. The IRS wants to know the amount of taxable income the firm earns during each period

Generally accepted accounting principles (GAAP) are rules that govern the practice of financial accounting. The goal of GAAP is to ensure that the information generated by financial accounting is relevant, reliable, consistent, and comparable.

An auditors's reports indicates whether the financial statements were prepared in accordance with GAAP and fairly present the financial the financial condition of the company. The management discussion provides insights by top management to put numbers in context

They provide information to an organization's mangers and other internal stakeholders so that they can make better decisions. Various concepts are classification and measurements of costs, explicit costs involve monetary payments, implicit costs, variable costs, direct costs

It shows managers how a firm will acquire and use the resources needed to achieve its goals over a specific time period

a system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization

the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders

a set of accounting standards that is used in the preparation of financial statements

the private board that establishes the generally accepted accounting principles used in the practice of financial accounting

a financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities, and owners' equity

Assets=Liabilities+Owners' Equity

Resources owned by a firm

Claims that outsiders have against a firm's assets

the claims a firm's owners have against their company's assets (often called "stockholders' equity" on balance sheets of corporations)

the financial statement that reports the revenues, expenses, and net income that result from a firm's operations over an accounting period

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income

resources that are used up as the result of business operations

the difference between the revenue a firm earns and the expenses it incurs in a given time period

analysis of financial statements that compares account values reported on the these statements over 2 or more years to identify changes and trends

the branch of accounting that provides reports and analysis to managers to help them make informed business decisions

the value of what is given up in exchange for something

a cost that involves the payment of money or other resources

the opportunity cost that arises when a firm uses owner-supplied resources

costs that remain the same when the level of production changes within some relevant range

costs that vary directly with the level of production

costs that are incurred directly as the result of some specific cost object

costs that are the result of a firm's general operations and are not directly tied to any specific cost object

a technique to assign product costs based on links between activities that drive costs and the production of specific cost object

a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific products

budgets that communicate an organization's sales and production goals and the resources needed to achieve these goals

budgets that focus on the firm's financial goals and identify the resources needed to achieve these goals

a presentation of an organization's operational and financial budgets that represents the firm's overall plan of action for a specified time period