Chapter 1

ACC 271

Accounting

An information and measurement system that identifies, records, and communicates an organization’s business activities.

Users of Accounting Information

Divided into external users (e.g., shareholders, lenders) and internal users (e.g., management, employees) of accounting data.

GAAP

Generally Accepted Accounting Principles, a framework of guidelines and rules for financial accounting.

Ethics in Accounting

Beliefs that distinguish right from wrong, ensuring trust in the information provided for decision-making.

Fraud Triangle

Three factors necessary for fraud: opportunity, pressure, and rationalization.

Financial Accounting Standards Board (FASB)

The organization that sets GAAP; governed by the Securities and Exchange Commission (SEC).

International Financial Reporting Standards (IFRS)

Standards issued by the International Accounting Standards Board (IASB) to create global comparability in financial reporting.

Accounting Equation

Assets = Liabilities + Equity; a fundamental equation reflecting a company’s financial position.

Return on Assets (ROA)

A measure of profitability calculated by dividing net income by average total assets.

Cost Principle

Accounting information must be based on actual cost, considered objective.

Monetary Unit Assumption

Transactions and events are expressed in monetary units.

Going-Concern Assumption

The assumption that a business will continue operating indefinitely.

Cost-Benefit Constraint

Only information with benefits exceeding the cost of its disclosure should be revealed.

Materiality Constraint

Only information that would influence the decisions of a reasonable person needs disclosure.