Users of Accounting
Give an example of an internal user.
Someone who works within the company.
Guidelines for accounting (rule book).
Generally Accepted Accounting Principles (GAAP)
Requires items on financial statements to be measured in terms of the dollar.
Monetary Unit assumption
Accounting Equation
Assets = Liabilities + Equity
Faithful representation
Give an example of an external user.
Creditor, Investor, Businesses, etc.
International accounting guidelines.
International Financial Reporting Standards (IFRS)
Assumes the entity will remain in operation for the foreseeable future.
Going Concern assumption
Something that you own.
Asset
Stockholder.
A person who owns stock in a corporation.
Any person or business to whom a business owes money.
Creditor
Requires managers to take responsibility for integrity and completeness of financial statements.
Sarbanes-Oxley Act (SOX)
Historical cost.
Purchase price
Something that you owe.
Liability
Examination of a company's financial statements and records.
Audit
What is the difference between financial and managerial accounting?
Financial accounting provides information to external users. Managerial accounting provides information to users internal to the company.
What does the Securities and Exchange Commission (SEC) oversee?
U.S. financial markets and FASB
Cost Principle.
Assets should be recorded at historical cost (purchase price).
Residual amount.
Stockholder's Equity
What is meant by a normal debit balance?
That account increases with a debit.
Licensed professional accountants who serve the general public.
Certified Public Accountant (CPA)
Private organization that oversees the creation and governance of accounting standards.
Financial Accounting Standards Board (FASB)
Economic entity assumption.
Organizations are a separate economic unit from their owners.
Normal balance for assets, liabilities, equity, revenue, expenses, and dividends.
A,Exp,Dividends: normal debit balance
L,E,Rev: normal credit balance
What causes a company to have a net profit? Net loss?
Net profit: revenues exceed expenses, net loss: expenses exceed revenues