ACC 224 (chapter 1) Flashcards
(19 cards)
What is accounting?
Accounting identifies, records, and communicates the economic events of an organization to interested users.
What is the objective of financial accounting?
To provide useful information to investors and creditors in making decisions.
How is information communicated in accounting?
Through financial statements and accompanying disclosures.
What economic activities does a company report?
- Financing: related to how the company finances its operations.
- Operating: related to the generation of revenue and expenses while engaging in the company’s normal business activities.
- Investing: related to the acquisition and disposition of long-term assets.
Who uses financial statements?
Internal Users: Managers and Employees.
External Users: Investors, Creditors, Tax Authorities, Customers, Labor Unions, Regulatory Agencies.
What makes financial reports useful?
They should accurately represent the economic activities in which the company has engaged during the period.
What is the Sarbanes-Oxley Act (SOX)?
Aims to reduce unethical corporate behavior and decrease the likelihood of corporate scandals.
What are Generally Accepted Accounting Principles (GAAP)?
The common set of standards used by public companies to report economic events, set by the Financial Accounting Standards Board (FASB).
What is the Fair Value Principle?
Assets and liabilities are reported at their fair value, which may fluctuate over time.
What is the Historical Cost Principle?
Assets are recorded at their original cost, regardless of how the value changes over time.
What is the Monetary Unit Assumption?
The data provided by companies must be expressible in monetary terms that quantify the economic events that occurred.
What is the Economic Entity Assumption?
The activities of an entity are kept separate and distinct from the activities of its owners and all other economic entities.
What are the primary financial statements?
- Balance Sheet
- Income Statement
- Statement of Stockholders’ Equity
- Statement of Cash Flows
What does the Balance Sheet present?
The financial position of the company on a particular date, including Assets, Liabilities, and Stockholders’ Equity.
What is the Accounting Equation?
Assets = Liabilities + Stockholders’ Equity.
What does the Income Statement report?
The company’s revenues and expenses over an interval of time.
What is Net Income?
The difference between revenues and expenses.
What does the Statement of Stockholders’ Equity summarize?
The changes in stockholders’ equity over an interval of time.
What does the Statement of Cash Flows measure?
Activities involving cash receipts and disbursements over an interval of time.
