LESSON 1 - 1 Lesson1 Modern Financial Accounting in the US...

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Lesson 1 Modern Financial Accounting in the US Financial Accounting can be defined as the information system that identifies, analyzes records, summarizes, and communicates the economic events of an organization to interested external users . External users are the persons (other than the directors, managers and employees who work for the organization) who need information about the business. (For example, a bank who is considering lending the organization money is an External User . Can you think of another type of external user? ) The Financial Accounting reports that organizations prepare for external users are called Financial Statements. ( In contrast, Managerial Accounting focuses on the information used primarily by the Internal Users , that is, the accounting information that the organization’s managers and employees use in running the business. Management Accounting is quite a bit different from Financial Accounting. You will learn about Managerial Accounting in the second course of Principles of Accounting (at TCC, ACCT 2302.) The Generally Accepted Accounting Principles (GAAP) Generally Accepted Accounting Principles , or GAAP (pronounced like “gap”), are the rules that US publicly traded corporations (defined below) must follow in preparing and presenting their Financial Statements. The primary objective of this course is to introduce you to GAAP and the concepts that underlie GAAP. Securities Acts of 1933/1934 and the Securities and Exchange Commission (SEC) Following the Stock Market Crash of 1929 that began the Great Depression of the 1930s, the federal government (led by President Franklin D. Roosevelt) passed “New Deal” legislation that established, among other things, US federal responsibility for protecting investors from malpractice in the investment markets. Specifically, the “New Deal” included the passage of the Securities Act of 1933 and the Securities and Exchange Commission (SEC) Act of 1934, which created the SEC . Modern financial accounting and the development of GAAP can be said to have begun in the US with these two Security Acts. The Security Acts created the SEC and gave it the authority to regulate and enforce accounting for publicly-traded US Corporations . The Securities Acts requires companies to provide "full and fair" disclosure of financial information that is relevant to the "prudent investor". (Students who are interested in learning more about the history of accounting may visit the site provided 1
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http://www.cpafinder.com/accounting/history-accounting.html ) A Form 10-K report is the official annual business and financial report filed by public companies with the SEC . This document contains comprehensive information about the company, including the company’s audited Financial Statements . (You can view the actual 10-K form at the following link: http://www.sec.gov/about/forms/form10-k.pdf ) Technically, the corporations required to file with the SEC are companies with at least 500 shareholders of one class of stock and at least $5 million in assets. However, for the
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LESSON 1 - 1 Lesson1 Modern Financial Accounting in the US...

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