ACCT 2000 Chapters 1-2

ACCT 2000 Chapters 1-2 - Introduction to Accounting(Chapter...

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Introduction to Accounting Fields of accounting 1. Financial accounting- focus on "external" reporting (people to people outside of the company) (ex. Bankers, creditors, etc.) 2. Managerial accounting- focus on "internal" reporting (people to people who work inside of the company) (ex. Management, CFOs, etc.) 3. Taxation- focus on individual income taxes (Congress are the ones who write tax laws) 4. Auditing- Outside auditors- “attestation” function- Opinion of did they prepare properly? Internal auditors- looking for ways to improve operations 5. Not-for-Profit accounting- used by charities, and government Accounting- a process of identifying, gathering and communicating economic information about a business entity to interested users to enhance decision making GAAP- Generally Accepted Accounting Principles- set of rules accountants use in accounting (need these so that the public can rely on what information they are looking at) Sources of GAAP: 1) APB opinions- original source of GAAP 2) FASB -Financial Accounting Standards Board- a group of people who research controversial accounting issues and propose changes to rules 3) SFAS- Statement of Financial Accounting Standards 4) FASB interpretations (Interpretations of standards) 5) Accounting Research Bulletins Users of Accounting Information- bankers, creditors, management, owners, Government, SEC-Security Exchange Commission, brokers, and investment advisors Organizations 1) FASB- responsible for issuing GAAP 2) AICPA- American Institute of CPA’s; governing body; sponsors Continuing Education; gives CPA exam 3) SEC 4) APB
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Underlying Theory of GAAP 1. Historical Cost Principal- (Weakest of accounting principles) Assets must be reported (in balance sheets) at their original cost Ex: you bought land in 1970 (cost $100,000). Still own land today (as of 8- 31-07). Today land is worth $3 million. Land will be reported at $100,000 on balance sheet. Cost is “Objective” and verifiable Market value is “Subjective” and is not viable 2. Stable Dollar Assumption In accounting we ignore inflation because it is assumed that the changes in purchasing power of the US dollar are insignificant (2.5%) Can’t ignore inflation of it is high (10-15%) price-level adjusted financial state; no accounting for inflation 3. Economic Entity Business unit is separate from other business units and from its owner(s) 4. Materiality (significance) a) Quantitative- relative dollar size (ex: $3million dollar building significant but $3 garbage can not significant) b) Qualitative- relative importance of an item (ex: employee strike b/c it doest have an specific dollar amount on it) If immaterial we can relax strict interpretation of GAAP 5. “Going Concern” Is a company expected to be affordable over the long-term (business have indefinite lives) 6. Full Disclosure If an event or item might influence the users decision, than disclose it through the $ Financial Statements (see below)
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ACCT 2000 Chapters 1-2 - Introduction to Accounting(Chapter...

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