Accounting Chapter 1 Flashcards
(49 cards)
What is accounting?
an information and measurement system and identifies, records, and communicates and organization’s business activities
Why is accounting called the language of business
all organizations
set up an accounting information system to communicate data to help
people make better decisions.
What two groups is accounting divvied into
external users and internal users.
identifying
Select transaction and events such as sale by Apple of an iPhone
Recording
input measure and log such as keeping a chronological log of transactions
Communicating
prepare, analyze, and interpret example: prepare reports such as Finical statements
what are examples of external users
Lenders, external auditors, shareholders, board of directors, regulators, customers.
what are examples of internal users
research and development managers, purchasing mangers, human resource managers, marketing managers, production managers, distribution mangers
what are ethics
beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior
what is the goal of accounting
to provide useful information for decisions
what are the 3 steps of making ethical decisions
1 identify ethical concerns: use ethics to recognize an ethical concern
2 Analyze options: Consider all consequences
3 Make ethical decision: Choose best option after weighing all consequences
what are the three aspects of the fraud triangle
opportunity: envision a way to commit fraud with a low perceived risk of getting caught, pressure: must have some pressure to commit fraud, such as unpaid bills , and rationalization: failing to see the criminal nature of the fraud or justifies the action
What is Sarbanes-Oxley (SOX)
Congress passed the Sarbanes–Oxley Act to help stop financial
abuses at companies that issue public stock.
* SOX requires documentation and verification of internal controls
and emphasizes effective internal controls.
* Failure to comply can lead to penalties and criminal prosecution of
executives.
what are the two important provisions in the Dodd Frank Wall Street Reform and Consumer Protection Act
- Clawback provision which mandates
recovery of excessive pay
and - Whistleblower provision whereby the SEC
will pay whistleblowers 10% to 30% of
sanctions exceeding $1,000,000.
What are the Generally Accepted Accounting Principles
making information relevant: relevant information affects decisions of users , reliable: reliable information is trusted by users , and comparable: Comparable information is helpful in contrasting
organizations.
What does the international Financial Reporting Standards (IFRS) do
Identifies preferred
accounting practices
what is the conceptual framework of the FASB and IASB.
objectives: to provide info useful to investors, creditors, and others
Qualitative characteristics: to require information that is relevant, reliable, and comparable
Elements: to define items that finical statements can contain
recognition and measurement: to set criteria that an item must meet for it to be recognized as an element; and how to measure that element
What are the General principles
assumptions, concepts, and
guidelines for preparing financial statements.
What are the Specific principles of accounting
detailed rules
used in reporting business
transactions and events.
what are the 4 accounting principles
Measurement principle (Cost principal), Revenue recognition principle, Expense recognition Principle, Full Disclosure Principle
measurement principle (cost principle)
Accounting information is based on actual cost. Actual cost is considered objective.
Revenue recognition principle
- recognize revenue when goods or
services are provided to customers
and - at an amount expected to be received from the customer.
Expense Recognition principle (matching principle)
A company records its expenses incurred to generate the revenue reported.
Full Disclosure Principle
A company reports the details behind financial statements that would impact users’ decisions in the notes to the financial statements
