Part 3 Financial Accounting and Finance Flashcards
What is GAAP?
Generally accepted accounting principles.
Accountants follow these principles in preparing reports.
What does GAAP allow investors and stakeholders to do?
These reports allow them to compare one company to another.
How are accounting principles and concepts developed?
They are developed from research, accepted accounting practices, and pronouncements of authoritative bodies.
Who is currently the authoritative body having the primary responsibility for developing accounting principles?
FASB - Financial Accounting Standards Board
What does the FASB publish?
Statements of Financial Accounting Standards and Interpretations to those Standards.
What is the business entity?
The individual business unit is the business entity for which economic data are needed. eg department store or grocery store.
Why must the business entity be identified?
So that the accountant can determine which economic data should be analysed, recorded and summarised in reports.
Why is the business entity concept important?
Because it limits the economic data in the accounting system to data related directly to the activities of the business.
The business is viewed as an entity separate from its owners, creditors or other stakeholders.
The business entity concept can be related to which other assumptions?
Economic entity assumption and Going Concern Assumption and Monetary Unit Assumption.
What is the economic entity assumption?
States that economic activity can be identified with a particular unit of accountability
What is the Going Concern Assumption?
The accountant assumes, unless there is contrary evidence , that the reporting entity will have a life long enough to fulfil its objectives and commitments.
What is the Monetary Unit Assumption?
All transactions and events can be measured in terms of a common denominator - the dollar.
