Chapter 1 - Financial Statements Flashcards
GAAP
General Accepted Accounting Priciples
Matching Priciple
Expenses are matched with accounting revenues
Conservatism
Recognizes expenses as soon as possible and postpones recognition of revenues as long as possible.
Materially
Unsignificant error that can be easily fixed if fixed soon enough.
Unit of Measure
Requires that economic data be recorded in dollars.
SEC requires which three financial statements.
Balance Sheet, Income Statement, Cash Flow Statement.
Balance Sheet
Financial Posistion.
Presents a snapshot of the firm’s investing and financing activites.
Presents a listing of assets, liabilites, and shareholder’s equity.
Answers the position or financial health of a firm.
Income Statement
Profitability
.Presents listing of revenues, expenses, and net income.
Answers how profitable the firm is.
Cash Flow Statement
Cash-generating ablility.
Presents operating, investing, and financing activities.
Answers if the firm is gerenating sufficient cash flow to finance operations and to aquire buildings and equipment.
Also answers if the firm must seek new funds from lendors or owners.
Accounting Equation
States that a firm’s assets balance with the sources of funds provided by creditors (liabilities) and the owners (shareholder’s equity).
The Auditing Function
Determines effectiveness of firm’s control for measuring and reporting business transactions.
Determins if the financial statements present fairly a firms’s financial position, results of operations, and cash flows.
Financial Statement Analysis:
Can be complex.
Can be simple.
Use judgment and analysis.
Reveals valuable information.
Sarbanes-Oxley
Establishes new standards for all U.S. public company boards, managment, and public accounting firms and non-U.S. companies with a U.S. presence.
SOX includes:
No misrepresentations. Are "presented fairly" Adhere to internal accounting controls. Any deficiencies are reported. Any practice changes are reported. Mustn not me destroyed, altered, mutilated, or concealed.
