Intermediate Accounting Test 1 Flashcards
Financial Accounting
Chiefly concerned with providing financial information to various external users.
Primary focus is on the financial information provided by profit-oriented companies to their present and potential investors and creditors.
Financial Intermediaries
Financial analysts, stockbrokers, mutual fund managers, and credit rating organizations. Provide advice to investors and creditors and/or make investment-credit decisions on their behalf.
Financial Reporting
Process of providing financial statement information to external users.
Capital Markets
Mechanisms that foster the allocation of resources efficiently.
Corporation
Dominant form of business organization that acquires capital from investors in exchange for ownership interest and from creditors by borrowing.
Initial Market Transactions
Provide for new cash by the issuance of stocks and bonds by the corporation.
Secondary Market Transactions
Provide for the transfer of stocks and bonds among individuals and institutions.
Rate of Return on Stock Investment
(Dividends + Share price appreciation) Divided by Initial Investment
Accrual Accounting
Measurement of the entity’s accomplishments and resource sacrifices during the period, regardless of when cash is received or paid.
Cash Basis Accounting/Net Operating Cash Flow
Difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.
International Accounting Standards Committee (IASC)
Formed in 1973 to develop global accounting standards.
International Accounting Standards Board (IASB)
IASC reorganized in 2001 and called this. Dedicated to developing a single set of global accounting standards.
Securities and Exchange Commission (SEC)
Responsible for setting accounting and reporting standards for companies whose securities are publicly traded.
Sarbanes-Oxley Act (SOX)
Applies to public securities-issuing entities. Provides for the regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.
Faithful Representation
Agreement between a measure and a real-world phenomenon that the measure is supposed to represent.
Conservatism
Inconsistent with neutrality.
Comparability
Helps users see similarities and differences between events and conditions.
Verifiability
Implies that different knowledgeable and independent measures would reach consensus regarding whether information is a faithful representation of what it is intended to depict.
Recognition
Process of admitting information into the financial statements.
Disclosure
Process of including additional pertinent information in the financial statements and accompanying notes.
Revenue/Expense Approach
Emphasize principles of recognizing revenues and expenses, with some assets and liabilities recognized as necessary to make the balance sheet reconcile with the income statement.
Asset/Liability Approach
First recognize and measure the assets and liabilities that exist at a balance sheet date and recognize and measure the revenues, expenses, gains and losses needed to account for the changes in theses assets and liabilities from the previous measurement date.
Auditors
Independent intermediaries who help ensure that management has appropriately applied GAAP in preparing the company’s financial statements.
Certified Public Accountants (CPAs)
Licensed individuals who can represent that the financial statements have been audited in accordance with generally accepted auditing standards.
