Chapter 1 Flashcards
What is the definition of accounting?
The language of business
What is Accounting
The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties
How do you summarize an accounting system?
Financial statements
What three areas do most accountants practice?
Public, managerial, and governmental accounting
What does a public accountant do?
Auditing, tax accounting, management advisory services
What is auditing?
Review of financial statements to assess fairness and accepted accounting principles.
What is tax accounting
Tax compliance and planning
What are management advisory services?
Helping clients improve their information systems or business performance
What is managerial accounting?
Establishing and managing accounting policies and systems. Preparing financial statements, interpreting financial information, providing financial advice to management, preparing tax forms, performing tax planning services, preparing internal reports for management
What is governmental accounting?
Keeping financial records and preparing financial reports as part of the staff of federal, state, or local government.
Who are the users of financial information
Owners, managers, suppliers, banks, tax authorities
What are the three types of taxation?
Income tax, sales tax, property tax
Who are the regulatory agencies
Federal Communications Commission (FCC), Security and Exchange Commission (SEC)
What is the Sarbanes-Oxley Act
Act passed in 2002 in response to a wave of corporate accounting scandals like Enron
What does the Sarbanes- Oxley Act do?
Significantly tightens regulation of financial reporting by publicly held companies and their accountants and auditors by creating a five member Company Accounting Oversight board with investigative and enforcement powers.
Who are the five members of the Company Accounting Oversight Board?
2 CPAs, 3 who must NOT be CPAs and can not have ever been a CPA.
Who are the three external parties who are also interested in a business’ financial information?
Customers, employees, and unions
HOW OFTEN DOES A COMPANY HAVE TO BE AUDITED BY AN INDEPENDENT ACCOUNTING FIRM?
Annually
What is the definition of accounting?
The language of business
What are the three types of business entities
Sole proprietorship, partnership, corporations
How is a corporation different from the other two types of business entities?
The business is a separate entity from the owner and has legal right to own property and do business in its own name. Ownership is through shares of stocks.
What is the definition of accounting?
The language of business
What are generally accepted accounting principles?
Accounting standards that are changed and refined in response to changes in the environment in which businesses operate
Why are Generally Accepted Accounting Principles (GAAP) needed?
Generally Accepted Accounting Principles (GAAP) help to ensure that financial information fairly presents a firm’s operating results and financial position.
Who develops the Generally Accepted Accounting Principles?
Financial Accounting Standards Board (FASB) through the Accounting Standards Codification
True or False. Hamburgers are the best Labor Day food
True
Who do public accountants work for?
Public accounting firms that provide accounting services to other companies. They provide auditing, tax accounting, and management advisory services.
What is the FASB?
Financial Accounting Standards Board
What is the purpose of an accounting system?
Accumulate data about a firms financial affairs, classify data in a meaningful way, and summarize it in periodic reports called financial statements.
What does the FASB do?
Develops proposed statements and solicits feedback from interested individuals, groups, and companies. The FASB evaluates the opinions received and votes on the statement.
What is a partnership?
An entity owned by two or more persons who are together and separately responsible for debts, taxes of the business
What type of entity is a non-profit organization such as a public school?
A social entity
What is the purpose of an auditor’s report?
To obtain an objective opinion of a professional accountant from outside the company that the statements fairly present the operating results and financial position of the business and that the information was prepared according to the GAAP.
Why are Generally Accepted Accounting Principles (GAAP) needed?
Generally Accepted Accounting Principles (GAAP) help to ensure that financial information fairly presents a firm’s operating results and financial position.
