study guide acc 331 with answers

study guide acc 331 with answers - 1 Environment of...

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1. Environment of Accounting Types of business organizations Corporation : A business incorporated under the laws of a particular state. A corporation acquires capital from investors in exchange for ownership interest and by borrowing from creditors. Partnership: Unincorporated business owned by two or more persons known as partners. Sole proprietorship: unincorporated business owned by one person. Information needs of external users – cash flow perspective Investors look for 2 sources of possible cash flow : Periodic dividend distribution from the corporation; the ultimate sale of the ownership shares of stock. Creditors lend money to a company for a specific length of time. They hope to gain by charging interest on the money they lend. Information intermediaries Financial Analysts Stockbrokers Mutual fund managers Credit rating organizations Accounting standard setters (establishment of accounting standards is a political process) : SEC Securities and Exchange Commission , are a set of guidelines companies follow in measuring and reporting financial information. : FASB Financial Accounting Standards Board , the private sector body given the primary responsibility to work out the detailed rules that become GAAP. : AICPA American Institute of Certified Public Accountants , a national professional organization that sets professional requirements for CPAs : GASB Governmental Accounting Standard Board, to develop accounting standards for governmental units. : IASB International Accounting Standard Committee/Board: a private organization dedicated to developing a single set of global accounting standards. IFRS International Financial Reporting Standards , a set of global accounting standards issued by IASB 2. Conceptual Framework Phase A: Objectives of financial accounting To provide financial information that is useful to capital providers Phase A: Hierarchy of accounting qualities : Primary: Relevance (predictive value, confirmatory value) and Faithful representation Relevance of information means information capable of making difference in a decision context.
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Example of confirmatory value: GMAS’ net income confirms investors expectations about future cash-generating ability. Example of predictive value: GMAS’s investor’s use 2010 Q1 earnings to predict the earnings in 2011 Q1. (completeness, neutrality, free from material error) Faithful Representation means agreement between a measure and a real-world phenomenon that measure is supposed to represent. Example of completeness: DEP company reported Property, Plant and Equipment (net) as a line item on balance sheet but omitted the details of composition and depreciation methods in its financial statements. Example of neutrality:
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This note was uploaded on 12/05/2011 for the course FNAN 301 taught by Professor Staff during the Fall '08 term at George Mason.

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study guide acc 331 with answers - 1 Environment of...

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