Module 1 Intro to Accounting Flashcards
Finance Governing Bodies
FASB: financial accounting standards board SEC: Securities and Exchange Commission IASB: international accting standards board
What policies provide practices and guidelines surrounding financial statements?
GAAP:
Generally accepted accounting principles
- basis to convert business transactions to accounting entries
- different rules exist outside of US
Define FASB and what role they play
Financial Accounting Standards Board
Body of professional accountants - not government agency
Source of the GAAP
Applies to non government entities
Define the SEC and role it plays
Securities Exchange Commission
Confirms standards set by FASB
Requires publicly owned companies to Provide financial info to shareholders using GAAP
Responsible for enforcement/penalties
Define IASB and it’s function
International Accounting Standards Board
Issues international financial reporting standards
Companies that operate internationally impacts expense and profit associated with comp and benefits
Sarbanes-Oxley Act of 20002 - define
Federal Law regulating accounting oversight, corporate responsibility, financial statements, documentation and reporting
Sarbanes-Oxley Provisions
Reporting structure: company must structure reports and processes according to external auditors requirements
Senior Management: must accept responsibility for the effectiveness of internal controls and reporting
Goal: improve accuracy of financial statements for investor reliance
What does Sarbanes-Oxley Compliance require company’s to do?
Document existing controls
Analyze Gaps - design appropriate controls
Correct material weaknesses when identified
What are the 5 Major Groups of Accounts?
Assets Liabilities Equity Revenue/Sales Expenses
What are Assets?
What a company owns
What are liabilities?
What a company owes
What is Equity in terms of accounting
What owners/investors have put into the business
Define Revenue/Sales
Money generated from the sale of goods or services provided
Define expenses
Cost of doing business
Which major accounts are on the balance sheet?
Assets
Liabilities
Equity
What major accounts are on the income statement?
Revenue/sales
Expenses
What are the 4 financial statements associated with accounting
Balance sheet
Income statement
Statement of cash flows
Statement of shareholder equity
What is included in the balance sheet?
- What’s owned, owed, and equity AKA: liabilities and equity - book value of a company -represents financial health of company - snapshot of financial position on specific date
What is included in the income statement?
Revenues and expenses incurred over a period of time
Shows profitability of a company
Define the statement of cash flow
Shows the liquidity of a company
Includes cash flows from operating, investing and transactions
Covers a period of time
What is contained in the statement of shareholder equity?
Capital invested by shareholders
Retained earnings (profit earned and retained by the company)
Covers a period of time
What are the minimum number of books that must be kept?
Tax Books (IRC)
Shareholder Books (GAAP)
Due to different standards
What are the Two types of accounting
Accrual Accounting
Cash Accounting
Define Accrual Accounting and what types of organizations use it
Revenue and expenses are recorded in the time period they apply regardless of actual cash exchange.
Used by public and privately held companies
Define Cash Accounting and what type of organization uses it
Revenues are recorded based on actual cash in and cash out
Individuals, government, small service organizations
What is double entry accounting
Double entry accounting states that there are 2 parts to every transaction: debit and credit.
The books are always in balance
In double entry accounting define debit
Use of funds
In double entry accounting define Credit
Source of funds
Which type of accounting uses double entry accounting and why?
Both accrual and cash accounting
Reduces errors
What are the 4 problems with Accounting?
Accuracy
Valuation
Timing
Methods
What are the components of the annual report?
The 4 Financial statements
Foot notes
Management discussion/ analysis
Auditors opinion
SEC requirements (annual audited financial statements)
Quarterly statements - publicly traded companies are required to provide (called 10Q) to SEC. Shareholders have a right to see quarterly statements
Advantages of financial measures
Forecasting future performance
Appraise financial condition, efficiency, profitability
Compare companies
Compare performance year over year
Disadvantages of financial measures
Do not provide all answers
Affected by different accounting methods
Affected by historical cost principles - based on historical values
Which national body initiates financial accounting standards
FASB
Which group of accounts is recorded on the income statement
Expenses
Which financial statement shows the financial position of a company at a specific point in time?
Balance Sheet
Which type of accounting records revenues and expenses when cash is received or spent?
Cash Accounting
Which of the following best describes a “problem” with accounting?
A. The Market Value of Assets is not shown
B. Management has no discretion regarding the timing of transactions
C. Companies Change Accounting Methods to often
D. The value of assets is based on future projections
The Market Value of Assets is not shown
