DEFINITIONS-CHAPTER 1---------------------------------------------
Financial Accounting- The primary objective of financial accounting is the preparation of financial statements - including the balance sheet, income statement and cash flow statement
Financial Statements-Balance sheet, Income statement, statement of cash flows and owner’s equity
Financial Reporting objective-To provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors (primary users)
G-P Financial Statements-Provide info to a wide variety of users
Accrual Accounting-Ensures company records change in the periods in which events occur and not when it is only received
GAAP-Common set of standards and procedures
AICPA-Nation organization of practicing CPA’s, contributor of development of GAAP
APB-(1)advance written expression of accounting principles,(2)determine appropriate practices,(3)narrow areas of difference and inconsistency in practice
Expectations Gap- What the public thinks accountants should do and what accountants think they can do
SOX Act- Passed in response to a string of accounting scandals at companies
Reporting challenges- Nonfinancial measurements, forward-looking info, soft assets, timeliness, understandability
DEFINITIONS-CHAPTER 2-------------------------------------------------
Conceptual Framework- Establishes the concepts that underlie financial reporting
First Level- Basic objectives
Second Level- Fundamental Objectives
Qualitative Characteristics:
Relevance- Info must make a difference in a decision
Predictive Value- Input to predictive processes used by investors to form own expectations about future
Confirmatory Value- Helps users confirm or correct prior expectations
Materiality- Omitting it could influence decisions users make on basis of the reported info
Faithful representation- Numbers and descriptions match what really happened
Completeness-All info that is necessary is provided
Neutrality- Cannot select info to favor one set of parties over another
Free from Error- More accurate representation of a financial item
Enhancing Qualities:
Comparability- Enables users to identify similarities and differences in econ events between companies
Verifiability- When different measurers get same answers
Timeliness- Before info has capacity to influence decisions
Understandability- Quality of info that lets users see significance
Basic Elements: Aspect of developing any theoretical structure
Assets, Liabilities, Equity, Investments by Owners, Distributions to Owners
Comprehensive income- All changes in equity besides investments and distributions to owners
Revenues- Inflows, Expenses- Outflows, Gains- Increase, Loss- Decrease
Recognition Concepts:
Economic Entity- Econ activity can be identified with a particular unit of accountability
Going Concern- Company will have a long