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ACIS 3115 Ch 1
Terms in this set (33)
Primary focus of accounting
provide financial information to various external users including investors, creditors, etc.
cash basis accounting
Reporting income when the cash is received and expenses when the cash is paid.
Difference is net operating cash flow
accrual basis accounting
Measurement of revenues and expenses, regardless of when cash is received or paid
Difference is net income or net loss
Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities.
Financial Accounting Standards Board, is the private sector body given the primary responsibility to work out the detailed rules that become GAAP.
Securities and Exchange Commission required companies to publish important facts about their business. It also regulated the activities of stockbrokers and others in the investment business
Emerging Issues Task Force; comprised of representatives from CPA firms and financial statement preparers the reach a consensus on how to account for new and unusual financial transactions that may potentially create differing financial reporting practices
Governmental Accounting Standards Board; develops GAAP for state and local governments.
IASC (International Accounting Standards Committee)
International Financial Reporting Standards. International accounting standards promulgated by the International Accounting Standards Board.
International Accounting Standards Board --- sets accounting standards in the rest of the world.
Public Company Accounting Oversight Board
-sets audit standards
Role of an Auditor
-Offer credibility to financial statements
-Express an opinion on the compliance of financial statements with GAAP
-Licensed by states to provide audit services—certified public accountants (CPAs)
Conceptual framework - objective
To provide financial information that is useful to capital providers
conceptual framework - qualitative characteristics
- Predictive value
- Confirmatory value
- Free from Error
- comparability (including consistency)
conceptual framework - constraint
conceptual framework - elements
assets, liabilities, equity, investment by owners, distribution to owners, comprehensive income, revenues, expenses, gains, losses
conceptual framework - financial statements
Statement of comprehensive income
statement of cash flows
statement of shareholder equity
conceptual framework - assumptions
economic entity, going concern, monetary unit, periodicity
conceptual framework - principles
Economic Entity Assumption
An assumption that every economic entity can be separately identified and accounted for.
Going Concern Assumption
The assumption that the company will continue in operation for the foreseeable future.
An assumption that the economic life of a business can be divided into artificial time periods.
Monetary Unit Assumption
An assumption that requires that only those things that can be expressed in money are included in the accounting records.
four approaches to expense recognition
-Based on an exact cause-and-effect relationship
-By associating an expense with the revenues recognized in a specific time period
-By a systematic and rational allocation to specific time periods
-In the period incurred, without regard to related revenue
original transaction value adjusted for depreciation and amortization
net realizable value
the amount of cash into which an asset is expected to be converted in the ordinary course of business
the cost that would be incurred to purchase or reproduce the asset
Present (or discounted) value of future cash flows
calculated by removing the time value of money from future cash flows
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation based on market information
estimates future amounts and then mathematically converts those amounts to a single present value
estimates the amount that would be required to buy or construct an asset of similar quality and condition
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