financial accounting basics

who sets the rules for tax?

congress and IRS enforces the rules

who sets the rules for financial accounting

GAAP

who sets the rules for managerial accounting

there are no set rules

who has the authority to set GAAP rules? who has the responsibility?

authority: SEC

responsibility: GAAP

what is an agency problem? what is the solution?

problems with management.

(taking advantage of funds to benefit manager, but not investors/employees/business health)

solution: following the GAAP rules and having 3rd party evaluation

The SEC requires public companies to file financial statements how many times a year?

4

what is profit margin

NI/sales

which way is better: high or low profit margin?

you want a HIGH profit margin

what is the objective of financial reporting?

provide useful information to investors and creditors TO MAKE SMART DECISIONS

what is the FAF

the parent of the FASB. it chooses who is on the FASB board

what are the 10 elements of financial statements? how are they defined?

what basic criteria should be met before an element is “recognized” in the financial statements

what are the 2 qualitative characteristics of the conceptual framework?

fundamental, enhancing