Accounting Chapter 1

accounting info is based on actual, objective cost

Measurement Principle

1. revenue is recognized when it is earned 2. proceeds don’t have to be in cash 3. measure revenue by cash received plus cash value of items received

Revenue Recognition Principle

a company must record expenses incurred to generate the revenue reportedin the same accounting period. This ensures that expenses are matched with the revenues they helped to generate, providing a more accurate financial picture.

Expense Recognition Principle

company is required to report details behind financial statements that would impact users’ decisions

Full Disclosure Principle

business will continue operating (as opposed to closing or being sold)

Going-concern Assumption

express transactions / events in monetary units

Monetary Unit Assumption

company life can be divided into time periods such as months or years

Time Period Assumption

a business is accounted for separately from other business entities, including its owner

Business Entity Assumption

only info with benefits of disclosure greater than their cost need to be disclosed

Cost-benefit Constraint

External Users

Shareholders, government/voters. Served by Financial Accounting (GAAP reports).

Internal Users

Managers, HR, purchasing. Served by Managerial Accounting (non-GAAP, custom).

4 Accounting Areas — FMTR

Financial, managerial, taxation, related.

4 Data Analytics Types — DDPP

Descriptive, diagnostic, predictive, prescriptive.

Fraud Triangle Elements — PRO

Opportunity + Pressure + Rationalization (stop via prevention).

Internal Controls

Records, independent reviews, duty segregation, physical locks (auditors verify).

FASB Framework:

Objectives and fundamentals that guides the Board when setting Generally Accepted Accounting Principles (GAAP):

• Objectives (investors/creditors)

• Qualitative traits (relevance/faithful representation)

• Elements, recognition/measurement.

Business Entities

Sole proprietorship: 1 owner

Partnership: 2 or more partners

Corporation: 1 or more shareholders get investors by selling stock

LLC: 1 or more members