Accounting
Information and measurement system that identifies, records, and communicates relevant information about a company’s business activities.
What are the two groups that use accounting information?
Internal and External Customers
What does GAAP stand for?
Generally Accepted Accounting Principles
What are the three components of the fraud triangle?
Opportunity, Rationalization and Pressure
GAAP wants information to have…
Relevance and Faithful Representation
Who sets GAAP?
The FASB or the Financial Accounting Standards Board
What is the IASB?
International Accounting Standards Board, provides standards for International Financial Reporting Standards (IFRS).
What are general accounting principles?
Assumptions, concepts, and guidelines for preparing financial statements
What are specific principles?
Detailed rules used in reporting business transactions and events
What are the four Accounting Principles?
1) Measurement (Cost) Principle
2) Revenue Recognition Principle
3) Expense Recognition Principle
4) Full Disclosure Principle
What is the Measurement (Cost Principle)?
Accounting information is based on actual cost. Actual code is considered objective.
What is Revenue Recognition Principle?
1) Recognize revenue when goods or services are provided to the customer and
2) At an amount expected to be received from the customer.
What is the Expense Recognition Principle (Matching Principle)?
A company records its expenses incurred to generate the revenue reported.
What is the Full Disclosure Principle?
A company reports the details behind financial statements that would impact users’ decisions in the notes to the financial statements.
What are the four accounting assumptions?
1) Going-Concern Assumption
2) Monetary Unit Assumption
3) Time Period Assumption
4) Business Entity Assumption
What is the Going-Concern Assumption?
The business is presumed to continue operating instead of being closed or sold.
What is the Monetary Unity Assumption?
Transactions and events are expressed in monetary, or money, units.
What is the Time Period Assumption?
The life of a company can be divided into time periods, such as months and years.
What is the Business Entity Assumption?
A business is accounted for separately from other business entities, including its owner.
What is the Accounting Equation?
Assets = Liabilities + Equity
What is the acronym for debits vs. credits?
Debits
D (dividends)
E (expenses)
A (assets)
Credits
L (liabilities)
E (equities)
R (revenues)
What is a financial statement?
Standardized reports that summarize a company’s financial performance and position. Includes the income statement, balance sheet, Statement of Cash Flows, and Statement of Owners Equity
What is an Income statement?
Describes a company’s revenues and expenses and computes a net income or loss over a period of time.
What is a statement of owner’s equity?
Explains changes in owner’s equity from owner investments, net income (or loss), and any withdrawals over a period of time.
