Exam 1 - EXAM1 FieldsofAccounting FinancialAccounting...

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EXAM 1 16:49 Fields of Accounting Financial Accounting External reporting Outside the company 4 Financial Statements Balance Sheet Income Statement Statement of Cash Flows Statement of Owners’ Equity External Users Creditors        Ability to pay Banks Investors Governments IRS, SEC Managerial Accounting Focus on internal reporting Primary user is management Taxation Income--- Individual
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Income tax laws Audit Internal Used directly for company External CPA Firm, independent Not For Profit Municipalities Charities Organizations FASB Financial Accounting Standards Board GAAP Generally Accepted Accounting Principles Set of rules that companies have to follow when setting up their financial statements SEC Securities and Exchange Commission Administrates the stock exchange Monitor your financial statements Issue certain procedures you have to follow
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AICPA American Institute of Certified Public Accounting Organizes and administers the CPA exam CPE IRS Internal Revenue Service Administer the tax laws and collect the taxes Congress writes tax law Less than 2% of people get audited Usually hire accounting majors who cannot get a job anywhere else Usually hire people with no accounting background 3 year statute of limitations Can only audit within taxes from within the last 3 years Chapter 2 Financial Statements Balance Sheet Income Statement Underlying Theory of GAAP
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10 Concepts and Principles (Historical) Cost Principle Tells us that assets (things that the we/the business owns) must be reported in the  financial statements in balance sheet at their original cost Cost is objective and verifiable Land is “asset” bought 20 years ago $100,000. Now worth $400,000 Must be valued at cost of $100,000 Not $400,000 Economic Entity Concept The business unit you are accounting for is separate and distinct from other business  units and from the owner Keep things separate Maintain separate records Ex. Buy a new computer for a business transaction; buy a DVD player for a house Stable Dollar Assumption We assume that the U.S. dollar is stable in value Allows us to ignore inflation All financial statements will be in U.S. dollars Materiality (Significance)
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Quantitative Aspect Has to do with the relative dollar amount Helps us determine materiality Qualitative Aspect The relative importance of the event  Ex. Employees going on strike (Affect profits, shut down company, etc.) Full Disclosure Principle If information might influence the users decision making process, then disclose it!
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