Acct 101 Chap 2

Acct 101 Chap 2 - Acct 101 Chap 2 Rule-Makers Financial...

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Acct 101 – Chap 2 Rule-Makers Financial accounting standards in the U. S. are mainly set by the FASB. The Securities and Exchange Commission can also set accounting rules for public companies. General ideas of accounting Cash Basis of accounting: Recording expenses and revenues when cash is paid or received. Accrual basis of accounting: Recording revenues when earned and expenses when incurred. Generally Accepted Accounting Principles (“GAAP”): A set of rules that accountants follow when preparing financial statements. These rules are largely set by the FASB (see below). FASB – Financial accounting Standards Board. A privately funded organization that has the primary authority for setting accounting standards in the U. S. Some general guiding principles of accounting: Revenue recognition: Revenue is normally recognized when the service is performed, and collectability can be reasonably estimated. This is normally time of shipment of goods. It is often not the same period in which the revenue is collected in cash, or “realized” Realization: the collection or payment of cash. Accrual accounting differs from cash basis accounting because of the rules for recognizing expenses and revenues. A result of recognizing expenses in revenues in periods other than those where the money is paid is the need to recognized unearned revenue and prepaid expenses. Period costs are recognized as expenses in the period in which they are incurred. Product costs are inventory costs directly traceable to the product, and are recognized as expenses when the product is sold or otherwise disposed of.
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Some costs that benefit a number of periods are expensed using systematic allocation, through amortization or depreciation. Acceptable alternatives: In some areas of accounting, more than one acceptable method of accounting exists. Materiality: Accounting rules concentrate on matters that are significant to decisions that users will make. Consistency: A company should continue to use the same accounting principles year after year, unless there is a good reason to change. Full disclosure: a company should disclose enough information to allow readers to understand what accounting methods it used.
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This note was uploaded on 03/31/2011 for the course ACCT 101 taught by Professor Wang during the Spring '11 term at Adelphi.

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Acct 101 Chap 2 - Acct 101 Chap 2 Rule-Makers Financial...

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