Chapter 1 Flashcards
The 5 major components of the financial statements are
Balance sheet Income statement Statement of cash flows Explanatory notes Auditors opinion
What is market to market accounting?
The practice of reporting investment securities in the balance sheet at their current market value. For ACTIVE securities, the unrealized gain or loss is reported as part if net income.
Accounting
To provide info that can be used in making economic decision.
Service- it is a practical TOOL
Concerned with quantitative financial info that is used in conjunction with qualitative evaluations in making judgements
Internal users
Make decisions directly affecting the internal ops of the co
External users
Users who make decisions concerning their relationship to the enterprise
Investors. Creditors.
Financial accounting
Focuses on the development and communication of financial info for external users.
Creditors
Need info about the profitability and stability of a co
Investors
Need info concerning the safety and profitability of their investment.
Balance sheet
Reports assets, liabilities and the net difference between them which represents the equity of the owners.
Income statement
Reports the revenue and expenses and the difference which is the net income
Statement of cash flows
The amount of cash generated and consumed by a company through operating, investing and financing.
Unqualified (auditors opinion)
Financial statements are in accordance with GAAP. They are consistent.
Unqualified with explanatory language
The opinion is unqualified but the auditor has felt it necessary to emphasize some item for further language:
Qualified
Either the audit firm was somehow constrained from performing all the desired tests or some item is accounted for in a way with which the auditor disagrees
No opinion
The auditor refuses to express an opinion because there is great uncertainty about whether the audited firm will be able to remain in business
