Studied by 170 peopleFor what fundamental purpose do we keep records?
To help make business decisions
Retained earnings represent an asset to the firm.
False
Recordkeeping promotes trust and reduces the risk of loss from exchanging with strangers
True
Accounting is not vital to the development of human civilization
False
We use managing accounting information to evaluate management performance
False
What is marketing?
collected knowledge and best practices of creating relationships
One characteristic of an asset is:
it provides expected future benefits
As shown in the syllabus, what is the main action of the Group Project?
Analyze publicly traded companies
Fundamental Demand For Accounting is___________
to help guide exchange
Accounting is ___________
an evolved economic institution
A bill of lading is a document issued by a(n) __________.
carrier
Which of the following documents is a primary source of accounting data (assets, liabilities, equity, revenues, expenses)?
Lease agreement
Workload refers to the volume of goods or services the organization will provide
True
A difference between a personal and a business budget is only a personal budget will help you stay on-track with long-range goals.
False
Which of the following indicates the capital structure of a firm?
Debt-to-equity ratio
Which of the following is a benefit of debt relative to equity?
Lower cost of capital
More than half of CEO compensation is now comprised of _____________.
stock options
A business plan should help you assess whether the proposed venture is sensible
True
What is the first step in budget preparation?
completion of an environmental statement
What does a strategic plan define?
broad set of goals for the organization
How much did I sell last year
Helps decide how much wheat to grow this year
How much wheat do I own right now?
Helps identify the scale of possible transactions
Was this customer a reliable exchange partner in the past
Helps identify whether you should continue doing business with that customer
Who you can and cant trust
Why do we need recordkeeping
Humans are fallible – our memory storage is finite
Recordkeeping supplements memory as exchange between strangers becomes common
How does recordkeeping promote exchange
Recordkeeping improves our memory of past interactions in a complex exchange environment, which promotes reputation formation (you can develop a reputation for trustworthiness*)* and cooperation
Recordkeeping promotes trust and reduces the risk of loss from exchanging with strangers
KEY: Before we had laws protecting property and contract rights, trust yielded implicit contracts that are self-reinforced
Recordkeeping (i.e., accounting) has a central role in expanding the scale, scope, and complexity of human exchange
Which is the ultimate source of human Economic development.
“For the first time in our history, we had more stuff than we could carry. We needed a way to keep track of it.”
Writing? Recordkeeping → Accounting
Accountants invented writing! [Numbers pre-date words]
Accounting is…
NOT just a series of rules
NOT just Debits and credits
Accounting is an evolved economic institution
Vital to the development of human civilization Vital to humans’ recent economic development
Accounting is…
The process of recording, summarizing, and analyzing financial transactions
To help people make Economic decision (business decisions)
SUMMARY: A system for providing financial information
Managerial Accounting:
designed primarily for decision-makers within the company
Demand arises as soon as the business is formed
Remember our “exchange guidance” discussion!
Financial Accounting:
designed primarily for decision-makers outside the company
Demand arises in a later stage of business development
Managerial Accounting
Looks forward – the future
Provides information for improving decisions
Internal users only: for the firm’s managers
Financial Accounting
Looks backward – the past
Reports what has happened to external users
via annual and quarterly financial reports called financial statements
Corporations can issue shares of stock to raise equity capital, separating ownership from control
Stockholders: Owners of the corporation, not usually involved in day-to-day business decisions
Residual Claimants:
owners hold a residual claim
Use financial accounting accounting information to evaluate management performance, to assess the company’s financial condition, and to predict future success
(non-managers have no access to internal company data, no access to managerial acct info)
Board of Directors:
Represents shareholder interests, hire & oversee management
Creditors (lenders)
Companies can also borrow (from a bank or another source) to raise credit capital
Use financial information to Assess Creditworthiness
Suppliers
Companies that supply you with raw material that you use in your business
Use financial information to assess creditworthiness
Potential investors
Individual investors, institutional investors, also credit rating agencies and security analysts (environment)
Use financial information to assess investment risk and expected Investment Returns
The nature of business – the economic process businesses follow – is to:
Obtain Capital
Make investments
Generate a future return
Corporate finance
informs capital acquisition/maintenance
Managerial accounting
informs investment decisions
Financial accounting
measures the returns
What is marketing?
Informally: collected knowledge and best practices of Creating relationships with and satisfying customers
What is management?
Informally: collected knowledge and best practices of setting the _strategy of an organization and coordinating the efforts of its employees
What is financial accounting?
Informally: collected knowledge and best practices for evaluating the financial performance of a company
Note
Flashcard