Financial Accounting Quiz #1 key terms

GAAP vs. GAAS

Generally accepted accounting principles, standards issued by the FASB - vs. - Generally Accepted Auditing Standards, standards issued by the PCAOB ( Public Company Accounting Oversight Board - created by Sox )

IASB and their standards IFRS

International accounting standards board, issues IFRS ( international financial reporting standards)

FASB

Financial accounting standards board

IMA

Institute of management accountants (management, employees, internal auditors)

For managerial accounting

SEC

Securities and exchange commission, government agency that has regulatory responsibility for the financial information issues by companies whose stock is publicly traded

Primary qualities: relevance ( PMC )

P: predictive value (Ex. In admitting students based off profile )

M: Materiality, used to make adequate judgements (Ex. Is the $ amount significant?)

C: Confirmatory value, feedback (Ex. Swat seeing how we perform on campus)

Primary quality: faithful representation (NFC)

N:neutral (unbiased), meaning it remains whatever amount initially purchased for r

F: Free From error

C: Completeness (Full disclosure → footnotes)

Footnotes

Footnotes are explanatory paragraphs that are considered an integral part of the financial statements - “fine print”

What are some kinds of financial statements? (3 for now)

→ Income (Earnings) Statement [IS]

→ Statement of Stockholders’ Equity (Retained Earnings Statement) [RE]

→ Balance Sheet (Statement of Financial Position)

What is the proper sequence for the preparation of financial statements?

1. Income Statement (IS)

2. Retained Earnings Statement (part of the Statement of Stockholders Equity) (RE)

3. Balance Sheet (BS)

4. Statement of Cash Flows (SCF)

What is the accounting equation (short and long)

Long: Assets = Liabilities + Capital Stock + Retained Earnings

Short: Assets = Liabilities + Stockholders Equity

What “Act” was passed in 2002?

Sox - Sarbanes Oxley Act which established the PCAOB (Public Company Accounting Oversight Board) meant to hold companies more accountable

Difference between bookkeeping & Accounting

Photo attached

Net Income

NI = Revenue - Expenses

What is recording in financial accounting?

-Entering information into the accounting records (ex. Journal, ledgers)

-Making information know to USERS periodically (Quarterly, Yearly, etc.)

What is summarizing in financial accounting?

Calculating the update dollar ($) amount in each account and in each account category

What is interpreting in financial accounting?

Analyzing information to determine its meaning. Using common metrics (ex. Ratios such as EPS, earning per share similar to a GPA for a company) to determine strengths and weaknesses

PCAOB

Establish generally accepted auditing standards in US known as GAAS (Generally Accepted Auditing Standards)