1- Intro to Financial Accounting

Question 1

Accounting definition

Answer 1

The process of identifying, measuring and communicating economic information.

Question 2

Origins of accountancy

Answer 2

• Agricultural revolution
• Need for- property ownership, legal and obligations.

Question 3

2 main accounting standards

Answer 3

• US GAAP
• IFRS

Question 4

The need for accounting standards

Answer 4

• Investors need to compare performance of firms
• Need for financial reporting to be cost effective.
• Multinational firms with subsidiaries in many companies.

Question 5

Subsidiaries definition

Answer 5

A company controlled by a holding company.

Question 6

Properties of US GAAP

Answer 6

• National US standard
• Rules based
• 25,000 pages (due to lots of US accounting scandals)
• LIFO allowed

Question 7

Properties of IFRS

Answer 7

• Run by IAS (International Accounting Standards) Board not-for-profit based in London, financed by industry and accounting firms.
• EU initiative
• Principles based
• 2000 pages
• LIFO not allowed

Question 8

LIFO

Answer 8

last out, first in method- reduces reported profit- reduces tax liability.