Intermediate Accounting

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1 Financial Reporting Overview Chapter 1 is an overview chapter covering accounting users, financial reporting, GAAP, accounting organizations, the conceptual framework, accounting careers, and ethics. The topics are wide ranging and very heavy on the new terminology side of things. Although it is a good chapter for introductory purposes, the concepts and organizations covered are so extensive that it will make a good chapter to come back to later, or at the end of intermediate accounting, to review. In fact, many parts of the chapter will make more sense and come together in your mind better only after you have dealt with specific details and examples in later chapters. Focus mostly on the terminology at this point in time. Making sense of it all will be easier later on. The final section on accounting careers and ethics may make for some interesting reading, but don’t expect to be tested much on it. The conceptual framework will probably get the bulk of the examination questions, both for this class and for the CPA exam. As such, understanding Exhibit 1-6 in the textbook is very important. Learning Objectives Refer to the Review of Learning Objectives at the end of the chapter. It is crucial that this section of the chapter is second nature to you before you attempt the homework, a quiz, or exam. This important piece of the chapter serves as your CliffsNotes or “cheat sheet” to the basic concepts and principles that must be mastered. If after reading this section of the chapter you still don’t feel comfortable with all of the Learning Objectives covered, you will need to spend additional time and effort reviewing those concepts that you are struggling with. The following “Tips, Hints, and Things to Remember” are organized according to the Learning Objectives (LOs) in the chapter and should be gone over after reading each of the LOs in the textbook.
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1-2 Chapter 1 Tips, Hints, and Things to Remember LO1 – Describe the purpose of financial reporting and identify the primary financial statements. Why? The key difference between financial and managerial accounting is that each benefits different users. Even though financial accounting information (the primary financial statements of balance sheet, income statement, and statement of cash flows) can be beneficial to internal users (management, employees, and the board of directors), the information is created primarily for external users (especially investors, creditors, and the government). Why? The balance sheet is the only financial statement prepared as of a point in time. Why is that? For one, it would be impossible to issue a balance sheet for, say, an entire year since the balances change daily. All of the other financial statements cover a period of time (month, quarter, or year usually). They show totals (total revenue, total cash from investing activities, etc.) for a certain interval. The balance sheet, on the other hand, and as the name of the financial statement implies, doesn’t show totals; instead,
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032459237X_174360 - 1 Financial Reporting Overview Chapter...

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