unit 1 | introduction to accounting Flashcards
similarities between private & public companies
- bank financing
- bond issuance
- internal & external reporting
different stakeholders for internal & external reporting
internal: employees, executive teams (ex. ceo), management teams, private investors, bod
external: public investors, lending institutions, gov’t & regulatory bodies, suppliers, customers, communities
accounting standards differences between internal & external reporting
internal: not required to follow GAAP
external: must follow GAAP
level of detail (on fs) for internal & external reporting
internal: detailed report & in-depth analysis to support decision making, less detail in summary data
external: less detail in summary data
how frequent should internal & external reporting be done?
internal: monthly, quarterly, yearly
external: quarterly, yearly
how can internal & external reporting be compared?
internal: results vs budget/forecast, result vs prior year
external: result vs prior year
what is ASPE
accounting standards for private enterprise
- used by private companies
what is IFRS
international financial reporting standards
- used by private & public companies
- public companies must follow
4 principle qualitative characteristics
- understandability
- relevance
- reliability (economic activity, verifiable, free of error $ bias)
- comparability
assumptions of conceptual framework
- going concern: company will continue to operate in the foreseeable future
- separate- entity: personal transactions & properties are expected to be separated from business finances
- historical cost: the value of a business transaction are primarily recorded at cost
what does “note to financial statement” mean?
company might disclose more detailed information (revenue by product line)
purpose of an income statement
(statement of profit and loss)
to understand a company’s profit and loss for a period
basic equation for the income statement
total revenue - total expenses = net income
purpose of statement of retained earnings
to understand the change in retained earnings for a period
basic equation for statement of retained earnings
beginning retained earnings + net income - current period dividends = ending retained earnings
purpose of a balance sheet
to understand the financial position of a company at a particular point in time
what is the accounting equation
asset = liabilities + shareholder’s equity
purpose of a cashflow statement
to understand sources & uses of cash during a period
basic equation for cash flow statement
operating cash flows + investing cash flows + financing cash flows = net increase/decrease in cash for a period + cash balance at beginning of period = cash balance at end of period
