First day of class, Accounting 2401 at Cy-Fair Community College, Fairbanks Center
Professor Sarah Smith
Revenue — Amounts earned in operation of a company
Expense — Monetary outlays that detract from revenue
We’re doing “Accrual Accounting”, where revenue is credited when it is earned, not when the check is received. Likewise, expenses are recognized when incurred, not when paid
Expensing of fixed assets: Depreciate over time, proportionally.
Definitions:
Accounting — An information system that identifies, records, and communicates the economic events of an organization to interested users
Financial Accounting — For external and internal users
Managerial Accounting — For internal users only
External users — Investors and creditors primarily, plus regulatory agencies, tax authorities, customers, vendors, labor unions
3 Types of business organizations — Sole Proprietorship, Partnership, and Corporation
Sole Proprietorship — One owner, who is primary decisionmaker. Business and owner are same to IRS. Easy to start up, but unlimited liability. Limited life, unless incorporates. Usually small businesses, individual stores, farms, garages, etc.
Parnerships — Need at least two partners. Easy to set up, having a contract is a good idea, but not a requirement. Partners liable. Business and owners same. Limited life.
Corporation — Multiple owners in form of stockholders. More trouble to set up. Business distinct from ownership, unlimited life, limited liability. Owners not necessarily management.
Revenues — Inflows of money or similar benefits due to company’s operations. Sales revenue, service revenue, interest revenue.
Expense — sacrifices incurred to earn/generate revenue
Assets — what a company owns or has claim to, has futue value
Liabilities — What a company owes to outside parties/creditors. Look for “payable”, i.e. accounts payable.
Owner’s equity — claims the owner or owners have against the assets of the company