Chapter 1: A Framework For Financial Accounting

Financial Accounting

Accounting information provided to external users.

Generally Accepted Accounting Principles (GAAP)

A framework of accounting standards and rules that companies must adhere to.

Financial Accounting Standards Board (FASB)

The U.S. organization that establishes accounting standards under the SEC.

International Accounting Standards Board (IASB)

The global organization that establishes international financial reporting standards.

Financing Activities

Transactions a company has with investors and creditors.

Investing Activities

Transactions involving the purchase and sale of resources expected to benefit the company for several years.

Operating Activities

Transactions that relate to the primary operations of the company.

Assets

Resources that a company uses to make money.

Liabilities

Amounts owed to creditors.

Stockholders Equity

Owner’s claims to resources.

Net income

Revenues minus expenses.

Dividends

Cash payments to stockholders, not considered expenses.

Income Statement

A financial statement reporting revenues minus expenses to calculate net income.

Balance Sheet

A financial statement showing assets, liabilities, and owners' equity at a specific date.

Statement of Cash Flows

Measures activities involving cash receipts/payments over an interval of time.

Sarbanes-Oxley Act (SOX)

Regulation providing oversight of auditors and increasing accountability of corporate executives.

Auditors

Trained individuals hired to express an opinion on the compliance of financial statements with GAAP.