GAAP
- Generally Accepted Accounting Principles
- FASB maintains GAAP principles
- Provides the general framework for what info is included in the financial statements & how this info is prepared and presented
Sarbanes-Oxley 2002
Gov’t passed act which requires public companies to issue a yearly report indicating whether they have an effective system of internal control over financial reporting
PCAOB
Public Company Accounting Oversight Board
- Board created after Sarbanes-Oxley Act (SOX)
- Charged with oversight of the public accounting profession
- Inspects the quality of audits (developed standard for CPAs)
- Every CPA has to register with the PCAOB
- Conducts investigations and administers penalties
FASB
Financial Accounting Standards Board
- Developing and maintaining GAAP
- Created by the SEC (Security and Exchange Commission)
- Independent rule-making body
GAAP Principles
- Business Entity
- Cost Principle
- Going Concern Assumption
- Objectivity Principle
- Stable Dollar Assumption
- Adequate Disclosure
- Objectivity
- Conservatism
3 Primary Financial Statements
- Balance sheet (shows financial standing on specific date)
- Income Statement (prepared over a period of time)
- Statement of Cash Flows (prepared over a period of time)
3 Types of Accounting
- Financial Accounting
- Management Accounting
- Tax Accounting
Financial Accounting
- external use only
- Their information reflects the financial resources, obligations, and activities of an economic entity
- Assists users such as investors and creditors in the decision-making process
Management Accounting
- internal use only (executives, product managers, sales managers)
- Involves the development and interpretation of accounting information for management
- Uses this info to assist in the decision-making process
Tax Accounting
- Historical use
- Information must conform with income tax reporting requirements
- Specialized field of accounting
- used by individuals, businesses, corporations and other entities
IASB
International Accounting Standards Board
- Issues International Financial Reporting Standards (IFRS)
- International version of FASB
8 Steps of Accounting
- Record all economic events in the General Journal
- Classify like transactions and post information to the General Ledger
- Summarize on Unadjusted trial balance
- Make end-of-period adjusting entries
- Prepare adjusted trial balance
- Prepare financial statements
- Journalize and post closing entries (only year-end)
- Prepare after-closing trial balance (only balance sheet accounts left)
Balance Sheet Accounts
Assets. Liabilities
- Cash - Notes/Accounts Payable
- Accounts Receivable - Income Taxes Payable
- Inventory - Unearned Revenue
- Supplies
- Prepaid expenses
- Land Owner’s Equity
- Buildings - Retained Earnings
- Equipment - Capital Stock
- Accum. Deprec.
Income Statement Accounts
Revenue Expenses
- Revenue Earned - Insurance Expense
- Unearned Revenue - Rent Expense
- Supplies expense
- Salary Expense
- Interest Expense
- Depreciation Expense
- Repair Expense
- Travel Expense
Accounting System
- Interpret and record the effects of business transactions
- Classify the effects of similar transactions to compute totals to be used in reports.
- Summarize and communicate the information contained in the system to decision makers
Bookkeeping vs Accounting
Bookkeeping is a direct record of all purchases and sales your business conducts, while accounting is a subjective look at what that data means for your business
- bookkeeping provides a day-to-day log of transactions that the business makes
Assets
- has a DEBIT balance
- Listed in order of liquidity (Cash always first followed by Accounts Receivable)
- Liabilities + Owner’s Equity = Assets
Liabilities & Owner’s Equity
- has a CREDIT balance
- Listed in order of payment (Accounts Payable usually first)
Shareholder’s Equity
- Retained earning & Capital Stock
- Retained earnings are the accumulation of all net income and net losses generated in the corporation since inception, less any dividends
Prepaid Assets (Asset)
- When a corporation pays for an expense in advance
- Prepaid insurance, prepaid rent, prepaid supplies
- Debit balance
Unearned Revenue (Liability)
- When a customer of a corporation pays the corp. for services or goods to be received in future periods
- Credit balance
Working Capital
Current Assets – Current Liabilities
current ratio= current assets
Contra Asset Accounts
Accumulated depreciation
