Accounting Exam 1 Flashcards
Who created US GAAP?
FASB (Financial Accounting Standards Board
Who named the FASB?
SEC
SEC does what?
Regulates financial markets, and has governing power over FASB and GAAP
What is the IASB
international accounting standard board who set the IFRS (international financial reporting standards).
Shareholders Equity
represents owners’ claims on total assets. Owners = “shareholders” or “stockholders”
Common stock
Purchased shares of ownership to the company. Voting rights, and a residual claim of the assets if the company fails
Retained earnings
cumulative total of all net income and losses retained by the company. Increased when a company records revenues and decreased when a company records expenses and dividends
Order of Financial statements
income statement, retained earnings, balance sheet, statement of cashflows. Net income flows into retained earnings and ending retained earnings flows into BS
Income statement time
for a period of time
Balance sheet time
as of “point in time”
Income Statement subtotal headings
Gross Profit
Operating Income
Net Income before taxes
Net Income
Balance Sheet subtotal headings
Total current assets Total assets Total current liabilities Total liabilities Total Stockholders Equity Total Liabilities and Stockholders Equity
Profitability ratio
measures the income or operating success of a company for a given period.
Liquidity ratio
measures the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
Solvency ratio
measures the ability of the company to survive over a long period of time
Current Ratio formula
current assets/current liabilities
Debt to Assets Ratio
total liabilities/total assets
EPS measures what and how?
measures profitability, by calculating net income earned on each share of common stock
Current ratio measures what and how?
measures liquidity, by calculating for every dollar of current liabilities, best buy had $(current ratio) of current assets. (HIGHER THE BETTER)
Debt to Assets Ratio measures what and how? –
measures solvency, by calculating the percentage of total financing provided by creditors rather than stockholders (lower the better)
Intracompany analysis
comparing trends within the company
Intercompany
comparing trends to another company
Industry average comparisons
comparing trends to industry averages
Elements of the Fraud Triangle
Rationalizations, Financial Pressure, and Opportunity
Purposes of internal controls
Safeguard assets
Enhance the reliability of accounting records
Increase efficiency in operations
Ensure compliance with laws
Internal Control Components
Control Environment Risk Assessment Control Activities Information and Communication Monitoring
Examples of internal controls
Physical controls - alarms, safes and time stamps
Independent controls - records are periodically reviewed by independent employee and errors are communicated to management
Human Resource controls - background checks, rotate employee duties and require vacations
