Hadm 1210: 16-25

Front 1

What is GAAP? What does it do?

Back 1

GAAP stands for generally accepted accounting principles. The rules that determine the content and measurement rules of the statements

Front 2

What is the SEC? What does it do?

Back 2

SEC = Securities and Exchange Commission. It determines the measurement rules for financial statements that companies issuing stock to the public (publicly traded companies) must provide to stockholders

Front 3

What is FASB, what does it do?

Back 3

Financial Accounting Standards Board. It sets ASC, the Accounting Standards Codification

Front 4

Why Is GAAP Important to Managers and External Users? / what are the 3 major economic consequences of the publication of the financial statement?

Back 4

1. Effects on the selling prices of the company stock
2. Effects on bonuses received by management and employees
3. Loss of competitive information to other companies

Front 5

What is IFRS?

Back 5

International Financial Reporting Standards.

Front 6

Who sets the IFRS?

Back 6

The IASB: International Accounting Standards Board

Front 7

Which countries use the IFRS?

Back 7

EU, AUS, NZ, HK, BR, CA, MX

Front 8

What is a ponzi scheme?

Back 8

borrowing more and more money and using it to pay off earlier creditors

Front 9

What are ethics?

Back 9

standards of conduct for judging right from wrong, honest from dishonest, and fair from unfair.

Front 10

What is a 3 step method to test if an action is ethical?

Back 10

1. Identify the benefits of a decision (often to the manager or employee involved) and who will be harmed (other employees, owners, creditors, the environment).

2. Identify alternative courses of action.

3. Choose the one you would like your family and friends to see reported on your local news. That is usually the ethical choice.

Front 11

Who is responsible for setting up systems to prevent and detect unethical behavior?

Back 11

You, the manager of the business. Primary responsibility for the information in the financial statements lies with management, represented by the highest officer of the company and the highest financial officer.

Front 12

What are three important steps to assure investors that the company's records are accurate?

Back 12

(1) they should maintain a system of controls over both the records and the assets of the company,

(2) they should hire outside independent auditors to audit the fairness of the financial statements, and

(3) they should form a committee of the board of directors to oversee the integrity of these other safeguards.

Front 13

What is an audit?

Back 13

An examination of the financial reports to ensure that they represent what they claim and conform with generally accepted accounting principles.

Front 14

3 Steps to ensure the accuracy of financial statements:

Back 14

1. System of Controls
2. External Auditors
3. Board of Directors

Front 15

Fraudulent financial statements are what type of offenses?

Back 15

Civil and criminal

Front 16

Name 3 companies that went bankrupt due to financial statement fraud

Back 16

1. Enron
2. WorldCom
3. Le-Nature
(4). Arthur Andersen [worldcom's audit firm]

Front 17

Describe the Balance Sheet

Back 17

it reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time

Front 18

Describe the Income statement

Back 18

reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time

Front 19

Describe the Statement of Stockholders' Equity

Back 19

The statement of stockholders' equity reports on changes in the stockholders' equity accounts during the accounting period.

Front 20

What are the 3 main types of business entities?

Back 20

The three main types of business entities are sole proprietorship, partnership, and corporation

Front 21

What is a sole proprietorship?

Back 21

A sole proprietorship is an unincorporated business owned by one person; it usually is small in size and is common in the service, retailing, and farming industries. Often the owner is the manager.

Front 22

In sole proprietorships, how are the business and owners viewed in accounting and by the law?

Back 22

Legally, the business and the owner are not separate entities. Accounting views the business as a separate entity, however, that must be accounted for separately from its owner.

Front 23

What is a partnership?

Back 23

A partnership is an unincorporated business owned by two or more persons known as partners. The agreements between the owners are specified in a partnership contract. This contract deals with matters such as division of income each reporting period and distribution of resources of the business on termination of its operations. A partnership is not legally separate from its owners.

Front 24

In partnerships, how are the business and owners viewed in accounting and by the law?

Back 24

Legally, each partner in a general partnership is responsible for the debts of the business (each general partner has unlimited liability). The partnership, however, is a separate business entity to be accounted for separately from its several owners.

Front 25

What is a corporation??

Back 25

A corporation is a business incorporated under the laws of a particular state. The owners are called stockholders or shareholders. Ownership is represented by shares of capital stock that usually can be bought and sold freely.

Front 26

What does it mean for stockholders to enjoy limited liability?

Back 26

Stockholders are liable for the corporation's debts only to the extent of their investments.

Front 27

How do stockholders manage the company?

Back 27

The stockholders elect a governing board of directors, which in turn employs managers and exercises general supervision of the corporation.

Front 28

What are LLCs and LLPs?

Back 28

Limited liability companies (LLCs) and limited liability partnerships (LLPs) have many characteristics similar to corporations.

Front 29

in terms of economic importance, which is dominant form of business organization in the United States?

Back 29

Corporations

Front 30

What are the 4 major advantages of corporations?

Back 30

(1) limited liability for the stockholders,
(2) continuity of life,
(3) ease in transferring ownership (stock), and
(4) opportunities to raise large amounts of money by selling shares to a large number of people.

Front 31

What is the primary disadvantage of corporations?

Back 31

The primary disadvantage of a corporation is that its income may be subject to double taxation (income is taxed when it is earned and again when it is distributed to stockholders as dividends).