Chapter 1 Flashcards
Provides relevant information to various external users
Financial Accounting
Mechanisms that foster the allocation of resources efficiently
Capital Markets
The dominant form of business organization that acquires capital from investors in exchange for ownership interest and from creditors by borrowing
Corporation
provide for new cash by the issuance of stocks and bonds by the corporation
Initial Market Transactions
Provide for the transfer of stocks and bonds among individuals and institutions
Secondary Market Transactions
Dividends +Share Price Appreciation
____________________________
Initial Investment
Rate of Return
Difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers
Cash Basis Accounting/Net Operating Cash Flow
Measurement of the entity’s accomplishment and resource sacrifices during the period, regardless of when cash is received or paid
Accrual Accounting
Set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes
Generally Accepted Accounting Principles (GAAP)
Responsible for setting accounting and reporting standards for companies whose securities are publicly traded
Securities and Exchange Commission (SEC)
The first private sector body that was delegated the task of setting accounting standards
Committee on Accounting Procedure (CAP)
National organization of professional public accountants
American Institute of Accountants(AIA)/ American Institute of Certified Public Accountants (AICPA)
The second private sector body delegated the task of setting accounting standards
Accounting Principles Board (APB)
The current private sector body that has been delegated the task of setting accounting standards
Financial Accounting Standards Board (FASB)
Responsible for selecting the members of FASB and its Advisory Council, ensuring adequate funding of FASB activities, and exercising general oversight of the FASB’s activities
Financial Accounting Foundation (FAF)
Responsible for providing more timely responses to emerging financial reporting issues
Emerging Issues Task Force (EITF)
Deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting standards
Conceptual Framework
Objectives are to develop a single set of high-quality, understandable global accounting standards, to promote the use of those standards, and to bring about the convergence of national accounting standards and International Accounting Standards
International Accounting Standards Board (IASB)
Umbrella organization formed to develop global accounting standards
International Accounting Standards Committee (IASC)
Developed by the IASB and used by more than 100 countries
International Financial Reporting Standards (IFRSs)
Independent intermediaries who help ensure that management has appropriately applied GAAP in preparing the company’s financial statements
Auditors
Licensed individuals who can represent that the financial statements have been audited in accordance with generally accepted auditing standards
Certified Public Accountants (CPA)
A list of rules for choosing the appropriate accounting treatment for a transaction
Rules-based accounting standards
Approach to standard setting stresses professional judgment, as opposed to following a list of rules
Objectives-oriented/principles-based accounting standards
A code or moral system that provides criteria for evaluating right and wrong
Ethics
Primary national organization of accountants working in industry and government
Institute of Management Accountants (IMA)
National organization of accountants providing internal auditing services for their own organizations
Institute of Internal Auditors
The quality of being useful to decision making
Decision Usefulness
One of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feed-back value and timeliness
Relevance
Exists when there is agreement between a measure or description and the phenomenon it purports to represent
Faithful Representation
Confirmation of investor expectations about future cash-generating ability
Predictive value/confirmatory value
If a more cost effective way of providing information is not expected to have a material effect on decisions made by those using the information , the less costly method may be acceptable
Materiality
Neutral with respect to parties potentially affected
Neutrality
Practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered
Conservatism
The ability to help users see similarities and differences among events and conditions
Comparability
Permits valid comparisons between different periods
Consistency
Implies consensus among different measures
Verifiability
Information that is available to users early enough to allow its use in the decision process
Timeliness
Users must understand the information within the context of the decision being made
Understandability
The perceived benefit of increased decision usefulness exceeds the anticipated cost of providing the information
Cost Effectiveness
In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely
Going Concern Assumption
Allows the life of a company to be divided into artificial time periods to provide timely information
Periodicity Accounts
The annual time period used to report to external users
Fiscal Year
Process of admitting information into the basic financial statements
Recognition
Process of associating numerical amounts to the elements
Measurement
Additionally insights about company operations, , accounting principles, contractual agreements, and pending litigation
Disclosure Notes
Requires that the earnings process is judged to be complete or virtually complete, and there is reasonable certainty as to be collectability of the asset to be received (usually cash) before revenue can be recognized
Realization Principle
The goods or services sold to the buyer are delivered (the title is transferred)
Point-of-Sale
Expenses are recognized in the same period as the related revenues
Matching Principle
Supplemental information disclosed on the face of financial statements
Parenthetical/ modifying comments
Reports containing more detailed information than is shown in the primary financial statements
Supplemental Financial Statements
