GAAP & Standards
This acronym represents the standardized accounting rules followed by businesses in the United States.
What is GAAP (Generally Accepted Accounting Principles)?
This term describes the system for recording, summarizing, and analyzing financial transactions.
What is accounting?
This inventory method assumes the most recently purchased items are sold first, potentially resulting in higher Cost of Goods Sold during periods of rising prices.
*What is LIFO (Last In, First Out)?*
This common accounting mistake occurs when business owners use the same bank account for personal and business expenses
What is mixing personal and business finances?
*This key objective of internal controls prevents theft and misuse of company resources*
What is Asset Protection?
This organization is responsible for creating and updating accounting rules in the United States.
What is FASB (Financial Accounting Standards Board)?
These three groups use accounting information to make important decisions about a business.
Who are investors, managers, and government agencies?
In this inventory valuation approach, the average cost of all inventory items is calculated and used to determine the Cost of Goods Sold.
*What is Weighted Average Cost (WAC)?*
This practice can lead to inaccurate financial statements by recording revenue before it's actually earned
What is improper revenue recognition?
*This infamous corporate scandal involved hiding debt and inflating profits through accounting loopholes*
What is Enron?
This common misconception suggests accounting is only about mathematical calculations, when in reality it involves much more.
What is "Accounting is just about math"?
This inventory method typically results in lower taxes during inflationary periods by increasing the Cost of Goods Sold with the most recently purchased, expensive items.
*What is LIFO (Last In, First Out)?*
Not performing this financial task regularly can allow errors or potential fraud to go unnoticed
What is reconciling bank accounts?
*This internal control technique involves dividing responsibilities among different people to reduce fraud risk*
What is Segregation of Duties?
Under this inventory valuation method, the oldest inventory items are sold first, often resulting in lower Cost of Goods Sold during rising price periods.
*What is FIFO (First In, First Out)?*
This type of data loss could result in tax penalties and a complete loss of financial history
What is not backing up financial data?
*This limitation of internal controls occurs when two or more employees work together to bypass established systems*
What is Collusion?
This financial statement is directly impacted by the choice of inventory valuation method, showing how the method affects a company's reported profits.
*What is the Income Statement?*
Recording these small transactions might seem unimportant, but over time they can significantly skew a budget
What are petty cash or minor expenses?
*These are policies, procedures, and systems implemented to safeguard business assets and ensure financial accuracy*
What are Internal Controls?