Chapter One Flashcards
What is accounting?
Identifies, records, and
communicates the economic events of an organization to interested users
What is bookkeeping?
Only the recording of economic events. It is one part of the accounting process.
Who are the internal users of accounting information?
Managers who plan, organize, and
run the business. These include marketing managers, production supervisors,
finance directors, and company officers.
What is managerial accounting?
Internal reports to help users
make decisions about their companies. Examples are financial comparisons of
operating alternatives, projections of income from new sales campaigns, and
forecasts of cash needs for the next year.
Who are the external users?
Individuals and organizations outside a company who want
financial information about the company. The two most common types of external
users are investors and creditors.
Who are investors?
Partial owners of a company because they have supplied financial capital.
How do investors use accounting reports?
To decide whether to buy, hold, or sell ownership shares of a company
Who are creditors?
Those who have lent money or resources to a company and need to be repaid.
How do creditors use financial reports?
to evaluate
the risks of granting credit or lending money
What is the Sarbanes-Oxley Act?
Otherwise known as SOX. An act aimed at reducing unethical corporate behavior and decreasing the
likelihood of future corporate scandals. Top management
must now certify the accuracy of financial information and penalties for
fraudulent financial activity are much more severe. Also, it increased the
independence requirements of the outside auditors who review the accuracy of
corporate financial statements and increased the oversight role of boards of
directors.
What are ethics?
The standards by which an action is judged right or wrong, honest or dishonest.
What is GAAP?
Accounting standards that are generally accepted
and universally practiced. Stands for Generally Accepted Accounting Principles.
What is FASB?
The primary accounting standard-setting body in the United States. Stands for Financial Accounting Standards Board (FASB).
What is SEC?
The Securities and Exchange Commission (SEC). It is the agency of the U.S. government
that oversees U.S. financial markets and accounting standard-setting
bodies. The SEC relies on the FASB to develop accounting standards,
which public companies must follow.
What is the IASB?
The International Accounting Standards Board (IASB). An international committee that sets standards that have been adopted by many countries outside the USA.
