Financial Accounting (Test 1) – Flashcards
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What is the accounting definition?
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Accounting is the "process of identifying, measuring, and communicating financial information about an economic entity to permit informed judgments and decisions by users of the information"
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What is the difference between financial accounting and managerial accounting?
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Financial Accounting provides information for external decision makers (ie. investors, lenders) while managerial accounting provides information to internal decision makers (ie. manager, employees)
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What are some roles accounting has in our society?
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1. Individual - managing cash 2. Business - how close are businesses to meeting financial goals 3. Investors - is a company worth investing in 4. Creditors - can this individual pay the bank back 5. Taxing Authorities - what should this person pay in income tax
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Financial Accounting Standards Board (FASB)
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privately funded organization that oversees the creation and governance of accounting standards; works with government agencies
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Securities and Exchange Commission (SEC)
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oversees US. financial markets and oversees organizations like the FASB
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What characteristics are unique to Partnerships and Corporations
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Partnerships - company ends when partners chose or when they die, partners are personable liable, partnership isn't taxed Corporations - companies are indefinite, stockholders aren't liable, separate taxable entity
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What is the organization of a corporation?
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Stockholders ? Board of Directors ? Chairperson of the Board ? President ?Vice Presidents
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What is the primary objective of financial accounting under the conceptual framework?
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Accounting should follow a set of standard rules
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What is the qualitative characteristics of accounting that creates decisiveness usefulness?
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1. Be Relevant (useful and necessary) 2. Reliable (complete, free from error, neutral)
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What are the Generally Accepted Accounting Principles?
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1. Economic Entity - separate in an of itself 2. Going concern - entity is indefinite 3. Monetary Unit - the dollar is reasonable stable and is the common denominator for all activities 4. Historical Cost/ Cost Assets - assets and liabilities should be accounted for based on acquisition price
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What are examples of assets?
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Cash, Receivables, Supplies, Inventory, Land
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What are examples of liabilities?
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Accounts Payable (money owned on things owned), Notes Payable (borrowed money), wages payable (owing employees money)
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What are examples of Revenues?
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Service Revenue
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What are examples of expenses?
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Salaries expense, advertising expense, property tax expense
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What are the requirements of a business transaction?
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1) Must be able to be measured reliably in dollars and cents. 2) Must affect the accounting equation (assets, liabilities, equity)
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What is the purpose of financial statements?
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communicate information to outside parties
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List the 4 common financial statements
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Income Statement/Statement of Earnings or Operations Statement of Retained Earnings Balance Sheet Statement of Cash Flows
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Describe the Income Statement
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reports how well a business performed its operations over a period of time through profit or loss (list revenues and expenses and showed differences)
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Describe the Statement of Retained Earnings
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reports how much money is not paid out as dividends (shows retained earnings at beginning of period + net income/net loss - dividends+ retained earnings at end of period)
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Describe the Balance Sheet
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reports business' financial position at a specific date (shows accounting equation for comparison of assets vs liabilities)
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Describe the Statement of Cash Flows
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reports cash coming in and cash going out in a given time period (shows sources/inflows and uses/outflows of cash activity, cash balance, and more)
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What is the ROA equation and what is its meaning
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Net Income/ Average Total Assests determines how efficiently assets are being used
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Creditor
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any person or business to whom a business owes
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CPA (Certified Public Accountant)
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licensed accountants who serve the general public (individuals, education and government entities, etc.)
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CMA (Certified Management Accountant)
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Specialize in management accounting; usually works for a single company
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Generally Accepted Accounting Principles (GAAP)
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Guidelines set by FASB
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International Financial Reporting Standards
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A set of global accounting guidelines, formulated by the International Accounting Standards Board (IASB
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international Accounting Standards Board (IASB)
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The private organization that oversees the creation and governance of International Financial Reporting Standards (IFRS)
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Audit
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An examination of a company's financial statements and records
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Sarbanes-Oxley Act (SOX)
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Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports
