Page 138 -

Chapter 5
ACCOUNTING ACTIVITIES
Accounting activities can generally be classified as either financial accounting or
managerial accounting. An additional area of accounting, tax accounting, is beyond the
scope of this text. Because tax accounting is chiefly the external reporting of a business’s
activities to the Internal Revenue Service, data gathered for financial accounting serves as
the basis for tax accounting.
118 Financial accounting consists of documenting all the transactions of a company that
have an impact on the financial state of the organization and then using those documented
transactions to create reports for investors and external parties and agencies. These reports,
typically called financial statements, must follow the prescribed rules and guidelines of
various agencies, such as the Financial Accounting Standards Board (FASB), the U.S.
Securities and Exchange Commission (SEC), and the Internal Revenue Service (IRS).
Common financial statements include balance sheets and income statements. The
balance sheet is a summary of account balances such as cash held; amounts owed to the
company by customers; the cost of raw materials and finished-goods inventories; the value of
fixed assets such as buildings; amounts owed to vendors, banks, and other creditors; and
amounts that the investors have invested in the company. A balance sheet provides an
overview of a company’s financial health at a point in time, a key consideration for a
company’s creditors and investors. Figure 5-1 shows a sample balance sheet for Fitter Snacker.

Fitter Snacker Balance Sheet
December 31, 2011
(in thousands of dollars)
Assets
Cash $5,003
Accounts receivable $4,715
Inventories $9,025
Plant and equipment $6,231
Land $1,142
Total assets $26,116
Liabilities
Accounts payable $6,400
Notes payable $10,000
Total liabilities $16,400
Stockholders’ Equity
C o b i r t n e t u c d a l a t i p $ 0 , 2 0 0
R n i a t e e e d n i n r a g s $ 7 , 7 1 6
T o t s l a t o c k h d l o e ’ s r e q y t i u $ 7 , 9 1 6
Total liabilities and stockholders’ equity $26,116
Source Line: Course Technology/Cengage Learning.

FIGURE 5-1 Sample balance sheet for Fitter

Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.