Chapters 1 and 2: Study Guide Material Flashcards
What are the three types of business formations?
- sole proprietorship
- partnership
- corporation
Who are the uses of a businesses information?
- owners
- creditors
Assets=?
liabilities + stockholder equity
What are the two major sources of stockholders’ equity?
- common stock
- retained earnings
Net Income=?
revenues-expenses
The balance sheet covers….
all the events/transactions that have affected each of the categories since the inception of the business
Operating activities
-involves cash and other accounts typically relates to net income and changes in current assets and current liabilities
Investing Activities
relate to changes in long-term assets
- buy or sell long term assets
- lend money or collecting money back
Financing Activities
-relate to dealings with long term creditors and owners
- borrowing or paying back principal
- owners invest in business or distributions to owners
Income statement shows what
expenses incurred
Statement of Cash Flows shows what
expenses paid
Balance sheet shows
expenses still owed
who is GAAP developed by?
FASB(financial accounting standards board)
who does the FASB get its power from?
the SEC( securities and exchange commission)
CPA code of conduct
-integrity
-objectivity
independence
-due care
the audit is signed on what basis?
- presents fairly(due to estimates)
- in all material respects
- in conformity with GAAP
- CPA must provide assurance as to the effectiveness of the internal controls of the business
Four World Wide CPA firms
- kpmg
- deloitte
- Pricewaterhouse Coopers
- Ernest and young
2nd tier firms
- Protiviti
- Grant thornton
- BDO
Regional firms
Parente Beard
Management discussion and analysis
is a required section of the annual report
it highlights trends,significant events and uncertainties regarding its operations, investing and financing activities
Two points on Assets
- they will provide future benefits to the owner
- they are recorded at original cost less adjustments
Statement of cash flows only records revenues….
when cash is received regardless of when the service is performed
What does the balance sheet not show? but what does it show
- the worth of the business
- the assets at cost
- the financing/funding behind those assets
True or False: Revenues can come before,after, or during the transaction?
True
Net Income on the Income Statement Does Not Equal
Cash,Change in Cash, Cash From Operating Activities or Retained Earnings
Who has primary responsibility for the accuracy of the financial statements?
-managers
What happens when fraudulent statements are presented?
-jail time for executives
What is the MD&A?
management discussion and analysis section
- it is a part of financial report
- highlights trends, significant events, and uncertainties regarding its operations, investing, and financing activities
What is the primary goal of FASB?
to collect all authoritative literature related to a particular topic in one place
What is the CRS?
Codification Research System which is an on-line, real-time data base that provides easy access to the Codification
How many countries permit the IFRS?
115 countries
Why is the implementation of a world-wide accounting system difficult?
-different users need
Principles vs Rules: GAAP vs IFRS
IFRS is based on principles
GAAP is more detail oriented and considered rules-based
What term does the IFRS use for balance sheet?
Statement of Financial Position
What makes the government and charitable organizations?
- they have no profit motive
- big difference is there is no stockholders’ equity section
Besides borrowing money what else can a corporation do to get money?
-issuing bonds
Who are the other external users of information?
- Internal Revenue Service and Securities Exchange Commission
- management and employees
Impediments for IFRS
- where is the funding and authority for IASB
- Sarbane Oxley Act of 2002
What do both systems use fair value or historical cost?
fair value
Statement of Cash Flows Points
- cash receipts(inflows) minus cash disbursements(outflows)
- organized according to business activity category
- balance and income statement provide insight in these activities
What does the balance sheet show in relation to assets?
- statement from handout about beginning…
- the assets at cost and the financing/funding behind those assets
