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340-CH1-Spiceland-15a - Ch 1 Financial Statements,...

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Ch 1 – Financial Statements, Accounting Standards & the Conceptual FrameworkIn this chapter you explore important topics such as the FASB’s conceptual framework that serveas a foundation for giving you insights into the “what”, “why” and “how” of understanding financialstatement elements and disclosuresI.What is Financial Accounting?Purpose:To measure and communicate information about an entity that is useful in making investment,credit and other decisions to external users who have a reasonable understandingA.Financial Statements & Reporting – (5) Statements1.Balance Sheet –reports the entity’s Resources (Assets), claims to the resources(Liabilities) and changes in them (Equity) for a point in time.2.Income Statement -shows the results of operations for a period of time.Follows accrual basis.(Review Cash Basis v. Accrual Basis accounting)3.Statement of Comprehensive Income –includes Net Income (from IncomeStatement) AND four “other” items that report “unrealized” gains/losses from thefollowing:Mark-to-Market Adjustments on Available For Sale SecuritiesTranslation Adjustments on Foreign CurrencyPension AdjustmentsMark-to-Market Adjustments on Derivatives & Hedging4.Statement of Stockholder’s Equity –shows investments by owners, distributionsto owners and all other changes in equity(i.e. Comprehensive Income).5.Statement of Cash Flows –shows inflows and outflows of CASH from (3)sources:I.OperatingII.InvestingIII. FinancingGoogle 2013 10-K FilingNotes to Financials –required disclosuresOther –1)Management Discussion & Analysis – assess risk of operating environment2)10K & 10Q Reports3)Auditor’s ReportII.Accrual Basis of AccountingFinancial Reporting under U.S. GAAP uses theAccrual Basis of Accountingrecord Revenues when “earned” and expenses when “incurred” without regard as to when“cash” is received or paid.Accrual Accounting is more useful in:1) analyzing performance2) Assessing futurecash flowsIII.Why Standards are Needed – U.S. GAAP1.Mutual understanding– represents consensus of what to report & how2.Comparability –between companies.(same rules/principles apply & havesubstantial authoritative support)
3.Significance –statements should present fairly, clearly, and completely thecompany’s financial operations.IV.Who has authority to set standards?SEC, FASB and PCAOBOriginally there were no standardized rules to follow, but with the establishment of an income tax in1913 and the stock market crash of 1929, and criticisms of reporting practices forced the accountingprofession to begin formulating guidelines.1.SEC -(1934)The Securities and Exchange Commission (SEC) has the authorityto setaccountingstandards for companies, but always has delegated the task to the accounting profession.

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Term
Fall
Professor
maccracken
Tags
Accounting, Balance Sheet, Income Statement, Revenue, Generally Accepted Accounting Principles, International Financial Reporting Standards

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