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What are the three main types of decisions that managers need information for in an accounting system?
Operating, investing, and financing decisions.
What do financial statements communicate to external decision makers?
Financial information to assess the business for investment decisions.
What are the four basic financial statements?
Balance Sheet, Income Statement, Statement of Stockholders’ Equity, Statement of Cash Flows.
What does the balance sheet report?
The financial position of a company, including assets, liabilities, and stockholders’ equity at a specific point in time.
What is the accounting equation?
Assets = Liabilities + Stockholders' Equity.
What does an income statement determine?
Net income or loss over a period of time.
What is the equation for net income on an income statement?
Revenues - Expenses = Net Income/Net Loss.
What are retained earnings?
Earnings reinvested in the business and not distributed as dividends.
What is reported in the statement of cash flows?
Inflows and outflows of cash during an accounting period categorized by operating, investing, and financing.
What organization in the U.S. oversees the creation of accounting standards?
The Securities and Exchange Commission (SEC).
What is the purpose of Generally Accepted Accounting Principles (GAAP)?
To provide a consistent framework for financial statement users to understand financial statements.
What are the responsibilities of management in ensuring ethical conduct in financial reporting?
Prevent unethical behavior, maintain controls over records, hire an independent auditor, and oversight by a board of directors.
What are the three main types of business entities discussed?
Sole proprietorship, partnership, corporation.
What is the role of the Financial Accounting Standards Board (FASB)?
To create a set of uniform accounting rules known as GAAP.
What are the 'Big 4' accounting firms?
Deloitte, PWC, EY, and KPMG.
What is required to become a Certified Public Accountant (CPA)?
Completion of the CPA exam, education requirements, work experience, and good character.
