FAR CPA Lessons 1-18 Flashcards
Define - GAAP
The rules of financial reporting for business enterprises. GAAP are also called accounting standards.
What are the 3 aspects of financial reporting?
- Recognition
- Measurement
- Disclosure
Explain Recognition
A recognized item is recorded in an accout and ultimately affects the financial statements
Explain Measurement
Concerns the dollar amount assigned to an item
Explain Disclosure
Many unrecognized amounts are reported in the footnotes to complete the portrayal of the firm’s financial position and performance
Identify the major organizations in the U.S. accounting standards
- Financial Accounting Standards Board (FASB)
- Securities and Exchange Commission (SEC)
- American Institute of Certified Public Accountants (AICPA)
- Financial Accounting Foundation (FAF)
- Financial Accounting Standards Advisory Council (FASAC)
- FASB’s Emerging Issues Task Force (EITF)
What is the Financial Accounting Standards Board (FASB)
The private sector standard setting board in the United States - Establishes financial accounting standards for business entities. The FASB is an independent body, subject only to the FAF.
What is the Securities and Exchange Commission (SEC)
The federal government agency that administers the securities laws of the United States. Has the authority to penalize firms when financial statements do not comply with GAAP.
What are registrants
Firms that register with the SEC
What is the American Institute of Certified Public Accountants (AICPA)
The national professional organization for practicing CPAs which provides members with resources, information and leadership
What are the 3 parts of the current accounting standard-setting mechanisms?
- FASB
- FAF (Financial Accounting Foundation)
- FASAC (Financial Accounting Standards Advisory Council
What is the Financial Accounting Foundation (FAF)
They appoint members of the FASB and it’s advisory councils, ensure FASB’s funding and oversee FASB
What is the Financial Accounting Stanadard Advisory Council (FASAC)?
Provides guidance on major policy issues, project priorities and the formation fo task forces
Mission of FASB
- Improve the usefulness of financial reporting
- Maintain current accounting standards
- Promptly address deficiencies in accounting standards
- Promote international convergence of accounting standards
- Improve the common understanding of the nature and purposes of information in financial reports.
What is FASB’s Emerging Issues Task Force (EITF)
Formed to consider emerging reporting issue and to accelerate the process of establishing rulings on such issues - if a consensus of 15 members is reached the issue does not go to FASB
How does FASB issue an amendment?
By releasing an accounting standards update
Which group writes GAAP
FASB
Components of external financial reports
- Income Statement
- Statement of Comprehensive Income
- Balance Sheet
- Statement of Changes in Owner’s Equity
- Statement of Cash Flows
- Footnote disclosures and supplementary schedules
- Auditor’s Opinions
Define The Accounting Standards Codification (ASC)
The compilation and organization of all GAAP sources
Is GAAP accrual based or cash based?
Accrual Based
Define accrual based accounting
Recognizes and reports the economic activities of the firm in the period the activity was incurred, regardless of when the cash activity takes place
a debit _____ an asset account
increases
Prepaid expenses is a(n) _______ account
asset account
cash out is a ______ and cash in is a _____
credit; debit