Intermediate Accounting Chapter 1

What is Financial Accounting?

Primarily concerned with the way companies identify, measure, and communicate financial information to external users. Recording the numbers.

What is Financial Reporting?

The process of communicating financial information to external financial statement users. Communicating the numbers.

What are Financial Statements?

The final documents that show how the company performed. Ex: Income Statements / Balance Sheet / Statement of Cash Flow .

What are the objectives of Financial Reporting?

Reporting Entity
General-Purpose Financial Reports
Existing and Potential Investors and Creditors
Make Decisions on Resource Allocation

What is a Reporting Entity?

An organization or economic unit for which financial statements are prepared.

What is General-Purpose Financial Reports?

It provides information to assist external users in assessing performance and estimating the value of an entity.

What is Accrual Accounting?

Requires that an event that alters the economic status of a company be recognized in the period in which the event occurs rather than in the period when cash changes hands.

What is Management Accounting?

It focuses on providing information for internal decision-making, planning, and control within an organization.

What is GAAP?

Generally Accepted Accounting Principles (GAAP) is a collection of commonly followed accounting rules and standards for financial reporting.

What is the SEC?

The Securities and Exchange Commission (SEC) is a governmental organization established in 1934, has direct and indirect regulatory power over the accounting standards process and is responsible for enforcing securities laws to protect investors.

What is the Securities Act of 1933?

It requires that investors receive financial and other information about securities held for sale in the public.

Currently GAAP standards are developed by?

The Financial Accounting Standards Board (FASB)

The FASB is overseen by?

The SEC

What are the two main Qualitative Characteristics that make financial information useful?

Relevance and Faithful Representation.