Chapter 1 Structure of Financial Accounting Flashcards
Financial accounting benefits which type of user? Internal or External.
External
Who are the users of financial accounting?
Investors
Creditors
Employees
Customers
Suppliers
Government Regulatory Agencies
Financial Intermediaries
What financial documents are most frequently provided to users of financial data?
Balance sheet, Income statement, Statement of cash flows, and the statement of shareholder’s equity
What is financial reporting?
The process of providing financial information to external users.
What is the rate of return?
dividends + share price appreciation
______________________________________ = %
Initial investment
What is accrual accounting?
Accrual accounting is a financial method that allows a company to record revenue before receiving payment and services and record expenses as they are incurred. Accrual accounting is a better measure of a company’s future operating cash flows.
What is cash-basis accounting?
Cash basis accounting is a method that records revenues or expenses as cash is received or paid out. Cash basis is considered less accurate than accrual accounting in the short term.
What is net income?
revenues - expenses
What does GAAP stand for?
Generally Accepted Accounting Principles
What is the 1934 Securities Exchange Act?
This act required disclosure of sales of securities in a secondary market. The intention was to make sure there is greater financial transparency and accuracy of sales and to discourage fraud and manipulation.
What is the 1933 Securities Act?
It requires significant and relevant information be provided to investors about securities and issues. It also prohibits misrepresentation and other forms of fraud in these sales.
What does SEC stand for?
Securities and Exchange Commission. The SEC has the authority to set accounting and reporting standards for companies whose securities are publicly traded. While the SEC has this authority, the act of making these standards are delegated to the private sector. So the SEC can overturn any ruling that the private sector makes.
What is the FASB?
The Financial Accounting Standards Board are concerned with accounting standards and have seven full time members from different financial backgrounds.
