Topic 1: The Nature and Purpose of Financial Accountin Flashcards
Bookkeeping
The preservation of a systematic, quantitative record of an activity.
Accounting
a system of providing “quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions
Financial Accounting
name given to accounting information provided for and used by external users
Managerial Accounting
name given to accounting systems designed for internal users
Financial Statements
the balance sheet, income statement, and statement of cash flows.
Balance Sheet
reports the resources of a company ( the assets), the company’s obligation (the liabilities), and the owners’ equity, which represents how much money has been invested by its owners.
Income Statement
reports the amount of net income earned by a company during a period, with annual and quarterly income statements being the most common. Represents the accountant’s best effort at measuring the economic performance of a company
Net Income
the excess of a company’s revenues over its expenses
Statement of Cash Flows
Reports the amount of cash collected and paid out by a company in the following three types of activities: operating, investing, financing.
Information Considered by Lender for Repayment of Loan
- listing of assets and liabilities
- Payroll stubs. tax returns, and other evidence of your income
- Details about any monthly payments (car, rent, credit, cards) you are obligated to make, and copies of recent bank statements to document the flow of cash into and out of your account.
Who Uses Financial Information
Lenders, Investors, Management, Suppliers and Customers, Employees, Competitors, Government Agencies, Politicians, and the Press
FASB
Financial Accounting Standards Board- sets accounting standards in the US.
GAAP
Generally Accepted Accounting Principles. Standards generated by FASB seeking consensus by requesting written comments and sponsoring public hearings on all of its proposed standards.
Securities and Exchange Commission (SEC)
Created by Congress to regulate U.S. stock exchanges.
Establish accounting standards for companies soliciting investment funds from the American public, but allows FASB to set accounting standards
Has specific legal authority to establish accounting standards for publicly held companies
Certified Public
Accountant
someone who has taken a minimum number of college-level accounting classes has passed the CPA exam, and net other requirements set by their state.
American Institute of Certified Public Accountants (AICPA)
professional organizations of certified public accountants in the US.
Provides continuing education service to its member’s political voice to lobby on behalf of its membership.
Responsible for preparing and grading the CPA examination
Maintaining the integrity of the account profession through its code of professional conduct
Public Company Accounting Oversight Board
Created by Section 101 of the Sarbanes-Oxley Act
Ended period of voluntary self-regulation
Inspects the audit practice of registered audit firms and has statutory authority to investigate questionable audit practices and to import sanctions such as barring an audit firm from auditing SEC-registered companies.
International Accounting Standards Board
formed in 1973 to develop worldwide accounting standards. AKA International Accounting Standards Committee
International Financial Reporting Standards (IFRS)
accounting standards produced by the IASB
Internal Revenue Service
a government agency that stipulates the rules and regulations that govern the collection of taxes in the United States
Integration of Worldwide Accounting Standards
- Increased efficiency of financial markets
- need to evaluate investments across the world
- integration of the global economy.
Sarbanes-Oxley Act
increased federal oversight of the audit process
