Overview
These notes summarize essential concepts for Accounting 215 Exam 1 at Iowa State, covering law, accounting principles, and foundational terms.
Law and Its Role
- Law defines what society has determined is prohibited or allowed.
- Laws provide structure, enforce rules, and help resolve disputes in society and business.
Accounting Fundamentals
- Accounting is the process of recording, summarizing, and reporting financial transactions.
- The purpose of accounting is to provide information for decision-making to internal and external stakeholders.
- Financial statements include the balance sheet, income statement, and statement of cash flows.
- Assets are resources owned by a business, while liabilities are obligations owed to others.
- Equity represents the owner's claim on assets after liabilities are paid.
Key Principles and Concepts
- The accounting equation is: Assets = Liabilities + Equity.
- Revenue is income earned from normal business operations.
- Expenses are costs incurred to generate revenue.
- Net income equals total revenues minus total expenses.
- Double-entry accounting requires every transaction to affect at least two accounts.
Key Terms & Definitions
- Law — what society has deemed prohibited or not.
- Accounting — recording, summarizing, and reporting financial transactions.
- Asset — a resource owned by a business.
- Liability — an obligation owed to another entity.
- Equity — the residual interest in assets after deducting liabilities.
- Revenue — income earned from selling goods or services.
- Expense — the cost of doing business to earn revenue.
- Net Income — total revenues minus total expenses.
Action Items / Next Steps
- Review core accounting terms and the accounting equation.
- Practice creating basic financial statements.
- Prepare for exam questions on law and foundational accounting concepts.