ACC6901 CH1 - Financial Accounting and its Economic Context

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  1. What is accounting?
    To identify, analyze, measure, and record business transactions for users in a certain format.
  2. What are business transactions?
    • Buying
    • Selling
    • Investing
  3. What is Financial Accounting?
    The field of accounting that serves external decision makers, such as stockholders, suppliers, banks, and government agencies.
  4. Who can do audits?
    • CPA (Certified Public Accountant)
    • A person or firm who examines the information used by managers to prepare the financial statement and attests to the credibility of the those statements.
  5. What is the requirement to become a CPA?
    • 105 hrs of education
    • CPA exam
    • 1-2 years of experience
  6. What is Management Accounting?
    The field of accounting that serves internal decision makers, such as top executives, department heads, college deans, hospital administrators, and people at other management levels within an organization.
  7. What accreditation is for management accounting?
    CMA (Certified Management Accountant)
  8. What kind of companies perform audits?
    • The international "Big 4"
    • Working at one is a major accomplishment
    • Starting salary is ~$400,000
  9. CPAs work with what sorts of firms?
    • Regional
    • Local
    • Sole proprietaryship
  10. What is a characteristic that accountants need to have?
  11. What is an audit?
    An examination of a company's transactions and the resulting financial statements.
  12. In an income statement, what is the Accrual Method?
    • Record revenues when we earn them
    • Record expenses when we incur them
    • Record net income
    • Don't base on cash to avoid manipulation
  13. What is the formula for net income?
    Net Income = Revenue - Expenses
  14. What is a Balance Sheet?
    A snapshot of the financial position of the company on a particular day.
  15. What is the Balance Sheet Equation?
    • Assets = Liabilities + Owner's Equity
    • Ex: $500,000A = $600,000L + ($100,000)E
    • $100,000A = $20,000L + $80,000E
  16. What is the formula for Net Worth?
    Net Worth = Assets - Liabilities
  17. What is a Statement of Cash Flows?
    Cash in vs. cash out, but sophistocated
  18. What is the Statement of Stockholder's Equity?
    Tells stockholders about their positions and equity.
  19. Who are people that need financial statements?
    • Shareholders
    • Lenders
  20. What is the Public Company Accounting Oversight Board (PCAOB)?
    • Have the power to shut down firms
    • Created after Enron scandal
    • An agency that regulates many aspects of public accounting and sets standards for audit procedures in the US.
  21. What is the SEC?
    • Securities and Exchange Commissions
    • The government agency responsible for regulating capital markets in the United States.
  22. What are Generally Accepted Auditing Standards (GAAS)?
    Standards issued by the Public Company Accounting Oversight Board that prescribe the minimum steps that an auditor must take in examining the transactions and financial statements and issuing an auditor's opinion.
  23. What are Generally Accepted Accounting Principles (GAAP)?
    • The term that applies to all the broad concepts and detailed practices to be followed in preparing and distributing financial statement.
    • It includes all the conventions, rules, and procedures that together comprise acceptable accounting practice.
  24. What is the code of professionals?
    Every accountant has an obligation to do their job in a moral fashion.
  25. What rule was put into place by the Ohio Board of Accountancy?
    If someone forces you to do unethical things, you must quit your job.
  26. What is the Financial Accounting Standards Board (FASB)?
    Wrote GAAP based on acceptance
  27. What are the International Financial Reporting Standards (IFRS)?
    • It's the international version of GAAP
    • The U.S. may never use it
    • Pushes fair market value to create a better evaluation
  28. What are the types of ownership?
    • Sole Proprieter
    • Partnership
    • Corporation
    • LLC
  29. What are the characteristics of a sole proprietor?
    • A business with a single owner.
    • Files a Schedule C document.
  30. What are the characteristics of a partnership?
    • A form of organization that joins two or more individuals together as co-owners.
    • Files a Form 1065
  31. What are the characteristics of a corporation?
    • A business organization that is created by individual state laws.
    • Files Form 1120S or Form 1120
  32. What are the characteristics of an L.L.C. (limited liability)?
    • Can be under sole proprietor, partnership, or corporation.
    • A feature of the corporate form of organization whereby corporate creditors (such as banks or suppliers) ordinarily have claims against the corporate assets only, not again the personal assets of the owners.
  33. What is an example of an issue for transaction analysis?
    • Shareholders invest $10,000 cash in company.
    • Purchase equipment for $1,000.
    • Paid wages of $500.
    • Perform services for $2000.
    • Purchased inventory on credit for $2500.
  34. What are some example columns in transaction analysis?
    • Cash
    • Equipment
    • Inventory
    • A/P (Accounts Payable)
    • Savings
    • Wages
    • Corporate Stock?
  35. What is an Annual Report?
    A document prepared by management and distributed to current and potential investors to inform them about the company's past performance and future prospects.
  36. What is a Form 10-K?
    • A document that U.S. companies file annually with the Securities and Exchange commission.
    • It contains the companies' financial statements.
  37. What is publicly traded stock?
    Shares in the ownership of a company that are sold to the public.
  38. What are assets?
    • Economic resources that a company expects to help generate future cash inflows or help reduce future cash outflows.
    • Cash
    • Merchandise Inventory
    • Equipment
  39. What are liabilities?
    • Economic obligations of the organization to outsiders, or claims against its assets by outsiders.
    • Notes payable
    • Accounts payable
  40. What are notes payable?
    Promissory notes that are evidence of a debt and state the terms of payment.
  41. What is owner's equity?
    • The owners' claims on an organization's assets, or total assets less total liabilities.
    • Other people's capital
  42. What are Net Assets?
    • Assets less liabilities
    • Net Assets = Assets - Liabilites
  43. What is an entity?
    An organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit.
  44. What is a transaction?
    Any event that affects the financial position of an entity and that an accountant can reliably record in monetary terms.
  45. What is a long-lived asset?
    An asset that a company expects to use for more than 1 year.
  46. What is an account?
    A summary record of the changes in a particular asset, liability, or owners' equity.
  47. What is inventory?
    Goods held by a company for the purpose of sale to customers.
  48. What is an open account?
    Buying or selling on credit, usually by just an "authorized signature" of the buyer.
  49. What is an account payable?
    A liability that results from a purchase of goods or services on open account.
  50. What is a compound entry?
    A transaction that affects more than two accounts.
  51. What is a creditor?
    A person or entity to whom a company owes money.
  52. What is privately owned (closely held, unlisted)?
    A corporation owned by a family, a small group or shareholders, or a single individual, in which shares of ownership are not publicly sold.
  53. What is a stock certificate?
    Formal evidence of ownership shares in a corporation.
  54. What is shareholders' equity?
    • Owners' equity of a corporation.
    • The excess of assets over liabilities of a corporation.
  55. What is pain-in capital?
    The total capital investment in a corporation by its owners, both at and subsequent to the inception of the business.
  56. What is par value (stated value)?
    The nominal dollar amount printed on stock certificates.
  57. What is pain-in capital in excess of par value (additional pain-in capital)?
    When issuing stock, the excess of the total amount the company receives for the stock over the par value of the shares.
  58. What is common stock?
    Par value of the stock purchased by common shareholders of a corporation.
  59. Who are common stockholders?
    The owners who have a "residual" ownership in the corporation.
  60. Who are the board of directors?
    • A body elected by the shareholders to represent them.
    • It is responsible for appointing and monitoring the managers, among other duties.
  61. Who is the chief executive officer (CEO)?
    The top manager in an organization.
  62. What are the Financial Accounting Standards (U.S. GAAP)?
    The set of GAAP that applies to the financial reporting in the United States.
  63. What is the FASB Accounting Standards Codification?
    A compilation of all standards and other elements of U.S. GAAP into a single searchable database that is organized by topic to make it easy to research financial reporting issues.
  64. What is the International Accounting Standards Board (IASB)?
    An international body established to develop, in the public interest, a single set of high-quality, understandable, and enforceable global accounting standards.
  65. What is an auditor's opinion?
    A report describing the scope and results of an audit.
  66. Who are private accountants?
    Accountants who work for businesses, government agencies, and other nonprofit organizations.
  67. What is the American Institute of Certified Public Accountants (AICPA)?
    The principal professional association of CPAs.
  68. What is the International Auditing and Assurance Standards Board (IAASB)?
    A body established by the International Federation of Accountants that is working to standardize audit regulation around the globe.
  69. What was the Sarbanes-Oxley Act?
    The source of most government regulation of the accounting profession in the US.
  70. What is a registered public accounting firm?
    An accounting firm that registers with PCAOB and therefore is allowed to audit companies with publicly traded stock in the US.
  71. What is the Governmental Accounting Standards Board (GASB)?
    The agency that regulates disclosures for governmental organizations in the US.
  72. Where does this go in transaction analysis? Company pays $10,000 on a bank loan.
    • -$10,000 from Cash (Assets)
    • -$10,000 from Note payable (Liability)
  73. Where does this go in transaction analysis? Company buys inventory for $50,000. Pays one-half the amount in cash and owes one-half on open account?
    • +$50,000 in Merchandise Inventory (Assets)
    • -$25,000 in Cash (Assets)
    • +$25,000 in Accounts Payable (Liabilities)
  74. Where does this go in transaction analysis? Company pays $4,000 to supplier?
    -$4,000 from Cash (Assets)
Card Set:
ACC6901 CH1 - Financial Accounting and its Economic Context
2013-08-25 22:15:11

"What is accounting?", auditing, organizations, and basic financial statements
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