Week 1 Flashcards
Two Systems of Accounting
US GAAP and IFRS. You can not compare companies between different accounting standards without converting one.
W-2
Wage and tax statement
1099 DIV
A record that a company or other entity paid you dividends
Lifetime Learning Credit
If you are registered for a 4-year degree, you get a couple thousand dollars off your taxes
How C-Corporations are taxed
They are taxed twice, paying taxes on their profits and then paying taxes on dividends
Exchange Transaction
Where two parties each receives and sacrifices something of approximate value
Also known as economic substance
24/7 Earning Cycle
Day: work
Night: investments
Investing allows you to make money while you sleep while paying less in taxes.
Goodwill
Difference between debit and credit. Gets added to debit
Where do securities get their value?
Securities do not have value, the assets that back them do.
Sales equation
Units x Price
Debit
(In) Assets and expenses
Credit
(Out) Liabilities and income
Asset
Future economic benefit
Liability
Present obligation for present or past events
Equity
Residual interest
Expense
Money going out
Income
Money coming in
Cash Accounting
a major accounting method that recognizes transactions only when cash is exchanged
You can not have accounts receivable or accounts payable on a cash basis system
Accrual System
a major accounting method where revenue is reported when earned and expenses are reported when incurred
This system is a two entry system:
- First entry is when you get the bill
- The second entry is when you pay the bill
The Five Different Financial Statements
- Balance Sheet
- Income Statement
- Cash Flow Statement
- Statement of changes in equity
- Notes: includes all accounting principles
US public companies have to submit financial statements using what accounting system?
They must use US GAAP, but can also include IFRS
US private companies have to submit financial statements using what accounting system?
US GAAPP, IFRS, or SMEs
Non-US public companies have to submit financial statements using what accounting system?
IFRS
Non-US private companies have to submit financial statements using what accounting system?
IFRS or SMEs, but could also include statutory reporting
F20
Allows foreign companies doing business in the US to file with the SEC without having to convert their financial statements from IFRS
Who is responsible for financial statements in a firm?
All management
Types of reports auditors can issue
Clean Unqualified
Qualified
Adverse
Disclaimer
Clean Unqualified
Auditors say everything is good with the report
Qualified
Auditors say that there are some discrepancies in the financial statements
Adverse
Auditors say the financial reports contain gross misstatements and have the potential for fraud
Disclaimer
Auditors are distancing themselves from providing any opinion at all related to the financial statements
Accounting Equation
A = L + EQ
