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14 Cards in this Set
- Front
- Back
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Financial Accounting |
isthe process of identifying, measuring, recording, and communicatingtransactions to external decision makers (primarily investors andcreditors) for use in decision making. |
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GAAP |
arethe rules and procedures that financial accountants of regulated U.S.companies are required to follow when recording transactions andpreparing the financial statements. GAAP is set by the FinancialAccounting Standards Board (FASB). |
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IFRS |
arethe rules and procedures that financial accountants of regulatednon-U.S. companies are required to follow when recording transactionsand preparing the financial statements. These rules are set by theInternational Accounting Standards Board (IASB) |
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SEC |
isthe government agency that has the legal authority to establishaccounting standards in the U.S., but delegates that authority to aprivate organization - the Financial Accounting Standards Board(FASB) |
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Annual Report and 10k |
arerequired to be completed annually by public companies. The annualreport is directed toward stockholders; whereas, the 10-K must befiled annually with the SEC. |
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4 required Financial Statements |
mustappear in the annual report and 10-K: Balance Sheet, IncomeStatement (often called a P&L in practice, which stands forProfit & Loss), Statement of Cash Flows, Statement ofStockholders' Equity. |
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Steps in Accounting Cycle |
1. Prepare Journal Entries2. Post Journal Entries to General Ledger3. Prepare Unadjusted Trial Balance 4. Prepare Adjusting Entries5. Post Adjusting Entries to General Ledger6. Prepare Adjusted Trial Balance7. Prepare Financial Statements8. Prepare Closing Entries9. Post Closing Entries to General Ledger10. Prepare Post-Closing Trial Balance11. Prepare Reversing Entries12. Post Reversing Entries to General Ledger |
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Adjusting Entries |
are prepared to ensure that revenues are recorded in the accounting period when earned, and expenses are recorded in the accounting period when incurred. |
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Accrual Basis Accounting |
requiresthat revenues be recorded when earned regardless of when the cash isreceived, and expenses be recorded when incurred regardless of whenthe cash is paid. This is required by GAAP. |
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Cash Basis Accounting |
iswhen revenues are not recorded until the cash is received, andexpenses are not recorded until the cash is paid. No receivable orpayable accounts are needed. This is used by small companies thatare not required to follow GAAP. |
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Order of financial statements |
ncome Statement (IS): The net income (revenues minus expenses) or net loss is needed in order to prepare the Statement of Retained Earnings. Statement of Retained Earnings (RE): The ending RE balance (beginning RE + net income - dividends) is needed in order to get the balance sheet to balance. Balance Sheet (BS): The BS consists of the Accounting Equation: Assets = Liabilities + Stockholders' Equity. Think of the BS as the major, all-encompassing financial statement. All of the other financial statements are detail for some of the BS accounts. The IS and Statement of RE are the detail behind the one BS account, retained earnings. The Statement of CashFlows is the detail behind the one BS account, cash. The Statement of Stockholders' Equity is the detail behind all of the equity accounts on the BS. |
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closing entries |
Increase (decrease) retained earnings by the net income (net loss) and to decrease retained earnings by the amount of any dividends. Zero out all of the income statement accounts and the dividends account so they begin the next fiscal year with zero balances. |
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Retained Earnings |
isequity, not cash. It is the summation of ALL of a corporation's netincome (minus any net losses) minus the dividends. In other words,it is the portion of the profits generated since the company'sinception that are kept (or retained) in the business and notdistributed to the stockholders. |
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prepaids |
The prepaid is recorded at cost when purchased, and the amount appearing on the balance sheet is the unexpired portion. |
