EXAM 1 Prep

Accounting 200 with Nemrow at Brigham Young University

About this deck

By: Kurt Van Wagenen
Created: 2011-02-02
Size: 32 flashcards
Views: 41

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What do businesses do?

A business is an organization, which seeks to provide goods or services to customers

What are the 3 basic kinds of businesses?

1. Manufacturing

2. Merchandising

i. Retail

ii. Wholesale

3. Service

What are the only two sources of capital available to start a business and what are their basic advantages and disadvantages?

Debt Financing (borrowing from creditors)

i. A—no sacrifice of ownership rights

ii. D—(1) must be paid back – temporary (2) consequences of failure to pay can be harsh – bankruptcy or foreclosure (3) can be difficult to qualify

Equity Financing

i. A--no requirement to repay contributed capital

ii. some sacrifice of ownership rights (voting, profit-sharing, post-termination resources)

What are the two ways basic ways owners/investors provide equity capital to a business?

1) Capital contributions. (Owners contribute assets for ownership rights.)

2)Retained earnings. (Owners allow assets created through profitable operations to be retained in the business.)

What is the role of the stockholders in corporate governance and operations?

Stockholders have the right to vote for a corporation’s Board of Directors (typically one vote per share). They benefit from dividend distributions and increasing stock values and have the right to share in any net assets available after the payment of liabilities in the event of business termination and liquidation.

What is the role of the board of directors in corporate governance and operations?

The Board of Directors hires and monitors the performance of senior management. They’re also involved in the making of long-term strategic decisions. Board members may or may not be stockholders and are typically compensated for their time and effort.

What is the role of senior management in corporate governance and operations?

Senior management is responsible for daily operations of the company. They are paid a salary by the company and may or may not own shares of stock themselves.

Why is accounting often referred to as the “language of business?”

Accounting is often referred to as the language of business because its sole purpose is to communicate business information.

What are some of the distinguishing characteristics of financial as opposed to managerial accounting?

Financial accounting seeks to provide information to current or future providers of capital (investors or creditors) and other interested parties outside of management (government agencies, etc.).

Done through financial statements in accordance w/ GAAP

What are some distinguishing characteristics of managerial accounting?

Managerial accounting seeks to provide information that’s useful to a company’s managers. In most cases this information is not released to the public and, as a result, is not governed by any rules or standards of accounting.
Management accounting reports often provide detailed information and many times include forecasts of future results or budgets.

What are the three general-purpose financial statements required under generally accepted accounting principles and what is the purpose of each?

Balance Sheet or Statement of Financial Position
Income Statement, Statement of Operations, Statement of Earnings, or Profit and Loss Statement
Statement of Cash Flows

What is the purpose of the balance sheet?

Reflects a company’s financial position (assets, liabilities and owners’ equity) as of a point in time

What is the purpose of the income statement?

reflects a company’s results of operations or profits/losses over a period of time

What is the purpose of the statement of cash flows?

reflects a company’s cash inflows, outflows and changing cash balance over a period of time.

What are the “notes to the financial statements?”

provide important supplemental information in support of a company’s general purpose financial statements.
includes information on accounting methods as well as more detailed information relative to certain financial statement amounts.

What is the SEC and what is its role with regards to publicly-held companies?

a federal agency responsible for the regulation of public capital markets in the United States

How does the SEC seek to insure that financial statement information provided to the public is credible and comparable?

requires an annual audit of the financial statements of all publicly-held companies by independent CPA firms to insure that the information provided in those statements is accurate and prepared in accordance with GAAP

What is GAAP and why is it important to financial statement users?

Generally Accepted Accounting Principles
methods of accounting and the financial statement disclosures required of SEC regulated companies
improves the comparability and usefulness of financial statement information to investors, creditors and other external users

Who is legally authorized to determine GAAP?

The SEC has the legal authority to determine GAAP for companies required to file financial statements with the SEC; however, the SEC currently allows the FASB to function in this capacity

What is the FASB and what is its role?

The Financial Accounting Standards Board (FASB) is a private non-profit organization currently responsible for the establishment of GAAP in the United States. The SEC recognizes the pronouncements of the FASB as authoritative

How do the SEC and the FASB relate to one another?

Because the SEC has the ultimate power to determine GAAP, the FASB exists and functions at the SEC’s pleasure. As a result, when the SEC talks the FASB listens. The SEC has considerable influence over the pronouncements issued by the FASB

What is the IASB and what is its role?

(IASB) is a private organization headquartered in London
committed to developing a single set of high quality global accounting standards.
cooperates with national accounting standard setters in an attempt to achieve convergence in accounting standards around the world.

Why are international accounting standards not allowed for companies whose securities trade in the United States and what would be the benefit if they were allowed?

SEC deems FASB standards superior in providing fuller and fairer disclosure of financial information

Who is primarily responsible for a company’s financial statement accuracy and compliance with GAAP?

A company’s management is primarily responsible for financial statement accuracy and compliance with GAAP. In fact, management failure to provide accurate financial information may constitute a crime under current law

How does a person become a CPA and what do CPAs do besides audits of financial statements?

Must be a college graduate having taken req'd accounting classes

What is the AICPA and what is its role?

The AICPA is a private professional organization made up of CPAs across the nation. In addition to the administration of the CPA exam, the AICPA also determines generally accepted auditing standards (GAAS), which govern the practices and procedures to be used by CPA firms in the conduct of a certified audit of financial statements.

Why aren’t CPA firms completely independent in the performance of an audit?

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T/F Debits always reflect an increase in an account.

False (Not true for liabilities, capital stock, retained earnings and revenue accounts.)

T/F Debits reflect an increase in assets.

True

T/F Debits to an expense account have an increasing effect on expenses, net income, retained earnings and owners’ equity.

False (Debits increase expenses. Increasing expenses cause a reduction in net income, retained earnings and owners’ equity.)

What does “double-entry accounting” refer to?

null

What is accrual basis accounting and why is it required under GAAP?

null

About this deck

By: Kurt Van Wagenen
Created: 2011-02-02
Size: 32 flashcards
Views: 41

About StudyBlue

“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy