ACC 3305Exam 1 Concepts

Capital Markets

provide a mechanism to help the economy allocate resources efficiently

Cash Basis Accounting

• Measurement of cash receipts and cash payments from transactions related to providing goods and services

• Difference is net operating cash flow

Accrual Basis Accounting

• Measurement of revenues and expenses, regardless of when cash is received or paid

• Difference is net income or net loss

Generally Accepted Accounting Principles (GAAP)

dynamic set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes

Securities and Exchange Commission (SEC)

– Created by Congress in response to the stock market crash of 1929

– Goal: To restore investor confidence

Financial Accounting Standards Board (FASB)

• Established to set U.S. accounting standards

• Seven full-time members

Government Accounting Standards Board (GASB)

develop accounting standards for governmental units such as states and cities

Accounting Standards Update (ASU)

any new standard issued by FASB

International Accounting Standards Committee (IASC)

Formed in 1973 to develop global accounting standards

International Accounting Standards Board (IASB)

• created by IASC

• To develop a single set of high-quality, understandable, and enforceable global accounting standards

International Financial Reporting Standards (IFRS)

Accounting standards created by IASB

economic entity assumption

presumes that economic events can be identified specifically with an economic entity

going concern assumption

anticipates that a business entity will continue to operate indefinitely

periodicity assumption

allows the life of a company to be divided into artificial time periods to provide timely information

monetary unit assumption

U.S. financial statements are denominated in the U.S. dollar

Measurement

process of associating numerical amounts with the elements

Disclosure

refers to the process of including pertinent information in the financial statements and accompanying notes

Revenue recognition

when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services

Historical Cost

• Original transaction value

• Bases measurements on the amount given or received in the exchange transaction

Recognition

refers to the process of admitting information into the financial statements

Expense Recognition

an accounting rule that requires businesses to record expenses in the same period as the related revenues they help generate