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10 Cards in this Set
- Front
- Back
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What is the purpose of accounting? |
To provide information to help make an economic decision |
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Who uses financial accounting information? |
Financial accounting information is used for decision making by external users, such as investors and creditors. |
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What is the conceptual framework? What are its different components? Be able to define all components and what they contain. |
3 Levels of the Conceptual Framework 1. Basic Objectives 2. Qualitative Characteristics and Elements 3. Recognition, Measurement, and Disclosure Concepts |
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What role do these groups play as it pertains to financial accounting information? SEC FASB IRS Internal / external auditors IASB |
The SEC enforces and regulates security laws, in other words it sets accounting standards for U.S. Companies The FASB primary purpose is to establish and improve generally accepted accounting principles (GAAP) within the United States in the public's interest. Internal auditors are company employees, while external auditors work for an outside audit firm. The IASB engages closely with stakeholders around the world, including investors, analysts, regulators, business leaders, accounting standard-setters and the accountancy profession. |
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What are the various assumptions and principles in financial accounting? |
The basic or fundamental principles in accounting are the cost principle, full disclosure principle, matching principle, revenue recognition principle, economic entity assumption, monetary unit assumption, time period assumption, going concern assumption, materiality, and conservatism. |
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Differences between GAAP and IFRS. |
.Under GAAP, the research is more focused on the literature whereas under IFRS, the review of the facts pattern is more thorough. |
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What are the various components of stockholders’ equity (SHE)? What causes changes in SHE? Pay close attention to retained earnings (R/E). |
Par value - This is a value of preferred and common stock that is arbitral (artificial); it is set by management on a per share basis. This artificial value has no relation or impact on the market value of the shares. Legal capital of the corporation - This is par value per share multiplied by the total number of shares issued. Additional paid-in capital (paid-in capital) - This is the difference between the actual value the company sold the shares for and their par value. |
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What causes net income (or net loss)? |
Expenses exceeding your revenue/ revenue exceeding your expenses |
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Use algebra to solve the accounting equation; example... Total Assets = $100 Total Liabilities = $30 Common Stock = $40 Retained Earnings (beginning balance) = $0 Total Revenues = $40 Total Expenses = $20 Dividends = $??? |
Assets = Liabilities + Shareholder Equity. |
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Given information about... cash sales on-account, and cash collections on-account... what is the ending cash (or A/R) balance? |
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