Financial Accounting Ch.2 (POWER POINT NOTES)

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income statement; matching concept
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The _____________ _____________ is based on the ______________ __________.
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recognize
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Companies may ____________________ (report) revenue in the income statement in a different accounting period from the period in which they collect the related cash.
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timing of events
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Focus is on the ______________________, NOT the timing of cash flows.
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separate statement of cash flows.
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Since we need to focus on the timing of event and not the timing cash flows. This explains why we need a ______________________________________.
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“accruals” and “deferrals”
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The phrase “accrual” encompasses both _________________ and ________________.
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accrual
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event occurs —–> cash exchange
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deferral
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cash exchange ——> event occurs
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revenue; expenses
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_______________ and _______________ can be accrued or deferred
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No
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Are cash receipts always revenue?
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permanent accounts
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what you have today is the cumulative result of lifetime activities (assets, liabilities, and equity [C/S & R/E])
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temporary accounts
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periodic sums that represent activities over a particular period (revenues, expenses, and dividends)
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corporate governance
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is the set of relationships between the board of directors, management, shareholders, auditors and other stakeholders that determines how a company is operated
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-the accountant’s role requires trust and credibility -accounting information is worthless is the accountant is not trustworthy -therefore, the accounting profession requires high ethical standards
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What is the importance of ethics in accounting?
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-exercises sensitive professional and moral judgements, act in a way to serve the public interest, perform with the highest sense of integrity, be objective and independent, in fact and appearance, exercise due care
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What is the code of professional conduct (AICPA)
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Sarbanes-Oxley (SOX) Act of 2002
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prompted by the audit failures of Enron, WorldCom, and others
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-Created the public company accounting oversight board (PCAOB) -Requires management to certify financial statements -Imposes harsh penalties on management violations
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What did the Sarbanes-Oxley Act of 2002 create?
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pressure, opportunity, rationalization
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What is included in the fraud triangle?
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by implementing internal controls
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How can companies reduce/minimize the fraud “opportunity”?
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accounts payable
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In an accounting problem purchasing “on account” means ___________________
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accounts receivable
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In an accounting problem selling “on account” means ______________________.
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unearned revenues
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When a customer pays a company in advance, a company has an obligation to the customer. What is this obligation called?
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under liabilities
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Where is the unearned revenue shown on the balance sheet?
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no we don’t
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Do we put unearned revenue on the income statement and use it to compute net income?

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