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39 Cards in this Set
- Front
- Back
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Managerial Accounting
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Serves internal decision makers
Internal users: marketing managers, production supervisors, finance directors, company officers |
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Financial Accounting
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Serves external decision makers
External users: investors, creditors, taxing authorities, regulatory agencies, customers, labor unions |
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Securities and Exchange Commission
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An agency of the US government that was established in 1933 to administer laws and regulations relating to the exchange of securities and the publication of financial information by US businesses.
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SEC Act of 1933
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Ensures buyers of securities receive complete and accurate information before the invest.
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SEC Act of 1934
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Established 10K, 10Q, and 8K (optional)
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Financial Accounting Standards Board
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An organization with the responsibility for developing accounting principles in the US
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Generally Accepted Accounting Principles
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The established set of standards and rules that are recognized as a general guide for financial reporting purposes, which have been established by the accounting profession.
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International Financial Reporting Standards
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The SEC issued a proposed rule which outlined the roadmap for the potential adoption of International Financial Reporting Standards by US public companies in place of US GAAP
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Generally Accepted Auditing Standards
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The established set of standards and rules that are recognized as a general guide for performing audits of financial statements, which have been established by the accounting profession.
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Forms of Business Organizations
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Sole proprietorship, partnership, corporation
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Types of Business Activities
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Service, merchandising, manufacturing
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Financial Statements
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Income Statement, Statement of Owner's Equity, Balance Sheet, Statement of Cash Flow, Notes
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Asset Liquidity
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Cash/Cash equivalents
Marketable Securities/Investments Accounts Receivable Merchandise Inventory Prepaid Expenses Supplies |
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Statement of Cash Flows Sources
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Operating Activities-day to day operations
Investing Activities-jinvesting from company's perspective Financing Activities-debt and equity |
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Direct Method of Statement
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Cash flow from Operating Activities (cash collected from customers, cash paid to suppliers and employees, net cash used for operating)
Cash flows from Investing Activities Cash flows form Financing Activites |
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Indirect Method
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Cash flows from Operating Activities (Net income, A/R, A/P, Depreciation Expense)
Cash flows from Investing Activities Cash flows from Financing Activities |
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Accounting Assumption
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Monetary Unit, Economic Entity, Period of Time, Going Concern
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Monetary Unit
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Usually the national currency of the reporting company
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Economic Entity
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A business is an economic unit separate and distinct from its owners
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Period of Time
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Information is reported in a company's financial statements at least on an annual basis (10K)
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Going Concern (Continuity)
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The company will continue to operate in the near future.
We assume a business will operate indefinitely |
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Accounting Principles
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Accrual Accounting, Revenue Recognition, Matching, Full Disclosure, Historical Cost
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Accrual Accounting
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Relating the financial effects of transactions, events and circumstances having cash consequences to the period in which the occur rather than the period when the cash receipts or payments occur.
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Revenue Recognition
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Revenues should be recognized when: realization has taken place, usually at the time of the sale, and recognize revenue when earned, measurable, and collectible.
Realization is the process of converting non-cash resources into cash or rights to cash. Recognize revenue at the point of sale, not necessarily when we get the cash |
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Matching
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To determine the income of a company for an accounting period, the total expenses involved in obtaining the revenue of the period must be computed and related (matched against) the revenues recorded in the period.
Costs incurred in generating revenues are expensed in the same period as the revenue is recognized. |
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Full Disclosure
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Circumstances and events that make a difference to financial statement users should be disclosed.
Any info that will influence the actions of a decision maker must be disclosed |
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Historical Cost
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The acquisition of goods, services, and other resources are entered into thte accounting records at their exchange price (the price you pay)
Accumulated depreciation subtracted from purchase price We record it at historical cost because it is objective and verifiable |
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Accounting Constraints
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Materiality and Conservatism
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Materiality
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An item is material if it is likely to influence the decision of a reasonably prudent investor or creditor.
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Conservatism
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Accounting measurements take place in a context of significant uncertainties therfore, when alternative accounting valuations are equally possible, select the one that is least likely to: overstate assets and income and understate liabilities and expenses.
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Contemporaneous exchange
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Cash received when earned
Expense paid when incurred |
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Accrual
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Income earned before money received
Expense incurred before money paid Impacts income statement now and impacts cash later |
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Deferral
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Income earned after money received
Expense incurred after money paid Impacts cash now and impacts income statement later |
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FOB Shipping Point
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Buyer Pays--when the buyer pays for shipping, it increases the cost of the purchase so merchandise inventory is debited
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FOB Destination
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Seller Pays
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Closing Entries
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1. Dr Revenue, Cr Income Summary
2. Cr Income Summary, Dr Expenses 3. Dr Income Summary, Cr Capital 4. Dr Income Summary, Cr Drawings |
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Internal Controls
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Objectives: Accurate reliable financial statements, and safeguarding assets
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Principles of Internal Control
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1. Establish responsibilities
2. Maintain adequate records 3. Insure assets and bond key employees 4. Separate record keeping from custody of assets 5. Divide responsibility for related transactions. 6. Apply technological controls 7. Perform regular and independent reviews |
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Cash Short/Over
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Goes on income statement as miscellaneous expense
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