CH 2: Accounting As A Language Flashcards
((Standard Setters?))
SEC- watchdogs
FASB - creation of standards, issues GAAP
IASB - issues IFRS
((Standards?))
US GAAP
IFRS
((Fundamental Characteristics)) of accounting information
- ((Relevance)): info is confirmatory with predictive value - using the past to predict then compare
- ((Representational faithfulness)): info is complete, neutral, and free from error - what you see is what you get
((Enhancing Characteristics)) of accounting information
- verifiability
- comparability
- understandability
- timeliness
Requirements for Public Companies in the US - companies that issue stock to the public
- ((4 financial statements)) prepared using US GAAP
- must be ((registered with the SEC))
- may ((issue/sell stock)) to public on a US exchange
- must follow ((SEC rules))
- may be ((delisted from stock exchange)) - voluntarily or involuntarily
((Forms)) submitted by public companies
((10-Q (quarterly)
10-K (annual)
8-K (interim)
11-K (buying/selling stock)))
((EDGAR))
Electronic Data Gathering, Analysis, and Retrieval - public company’s data is available
XRBL
extensible business reporting language - filings can be downloaded into excel
((The Income Statement))
Report on profitability of entities
Revenues: sales of fees earned
Expenses: costs incurred
Shows net difference between:
- how much was earned
- how much costs was incurred
((net income = bottom line))
What is Net Income?
Net Income is final number on the income statement
NET INCOME = REVENUES - EXPENSES
Income statements are prepared for a period of time (month, quarter, year)
Why is the Income Statement relevant?
- revenues earned
- expenses incurred
- results of operating for the period (month, quarter, year)
- can compare current period to prior period or use past as benchmark for future
((What are Stockholders?))
A stock holder ((owns a share of stock in corporation))
stockholder rights:
1. right to vote
2. right to participate in profits - dividends
3. right to residual claim after creditors
4. preemptive right to first right on purchase of new issues of shares - can keep same % ownership
5. have limited liability - loss up to stock investment
((Statement of Stockholders’ Equity))
- Common Stock and Paid in Capital - amount stockholders paid to acquire stock
- Retained Earnings - earnings not distributed as dividends
- Accumulated Other Comprehensive Income - items not reported on income statement
reflect changes ((period to period)) - changes over ((a period of time))
Why is ((Stockholders Equity Relevant))?
Capital ((Paid in)) by Stockholders: total dollars from issuing common stock
Capital ((Earned)): retained earnings [net income not distributed as dividends]
((Balance Sheet))
Assets [resources]
liabilities [owes]
Stockholders Equity (residual value) = Assets - Liabilities
Examples of Assets
-cash/cash equivalents
-short-term investments
-supplies
-inventory
-land
-buildings
Examples of Liabilities
-accounts payable
-wages payable
-bonds payable
-unearned revenue
Examples of Stockholders’ Equity
-paid in capital = stock accounts
-retained earnings
-OCI (other comprehensive income)
((Balance Sheet))
- balance sheets are considered permanent
- year ending balance is considered the next year’s beginning balance
- balance sheet is “one point in time”
ACCOUNTING EQUATION
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
every transaction affects the equation
why is the balance sheet relevant?
provides a snapshot of:
1. total resources
2. total obligations
3. equity at a point in time
((Statement of Cash Flows))
Cash come from the source, cash is dispersed for use
OIF -> OPERATIONS, INVESTING, FINANCING
prepared for a period of time
generating cash from operating activities is preferred
Information Management in Accounting
- businesses rely on technology to support recording and reporting data
- businesses collect significant amounts of economic and non economic data
- collecting, storing, managing, updating, and maintaining data require systems
- systems enable information to be gathered in a more efficient and reliable manner
