Accounting for decision makers
C213 WGU
1. Prepare 2. Analyze 3. Gather 4. Make decisions 5. Implement 6. Observe.
Accounting steps.
Inside, Internal Managerial info is inside or outside the business?
True. Financial accounting is only outside. Managerial accounting can be inside AND
outside. True or false, managerial accounting uses BOTH managerial and financial
accounting?
Outside, External, includes lenders and investors Financial is inside or outside the
business?
Balance sheet, income statement, and statement of cash flows The financial statement
includes what 3 documents
Balance Sheet Point in time, Assets (resources) and liabilities (obligations)
Income Statement Period of time (usually 1 year), amount of profit made
Statement of Cash flows Period of time, where money came from, and where it went.
Inflow and outflow of cash (Cash Flows). Change in money for the period.
Balance sheet equation Assets= liabilities + equity
Revenue equation Net income=Revenue - Expenses
Operating, investing, and financial activities The statement of cash flows includes what three
activities
FASB: Financial accounting standards. Private, no government involvement. It is a public
process, includes individuals experienced in business and accounting (7 members). The
decision makers in the U.S. (accounting rules)
GAAP: General accepted accounting principles Developed by accounting rule makers.
No Legal authority.
comparability We need accounting rules for...
SEC: Security and exchange commission. Located in Article 1, Sec 8, Clause 3 U.S. gov
agency responsible for ensuring that investors, creditors, and other financial statement users
are provided with reliable information. It watches behavior in financial markets.
Registration statements (prospectus), Form 10-K, Form 10-Q, and schedule 14A (proxy
statement). These are all publicly viewable. What forms do the SEC regulate?
Oversees stock exchanges, can suspend a company, investigate and suspect violations of the
SEC rules. What does the SEC do?
YES. The SEC has legal authority to establish accounting rules and disclosure requirements.
Does the SEC have legal authority?
USA congress->SEC->FASB Financial accounting rule per the US constitution
FASB: Financial accounting standards boardThe SEC created the
GAAP (has no legal authority) FASB created
,AIPCA: American INSTITUTE of certified public accountants. What sets auditory
standards, continue education credits, CPA exam, and is the code of professional conduct?
Only CPA's: Certified public accountants. Who is the only person who can sign audit
reports?
PCAOB: Public company accounting oversight board. The Sarbanes-Oxley Act "SOX"
created?
Under supervision of the SEC. PCAOB is under supervision of?
PCAOB: Public Company Accounting OVERSIGHT Board. Who appoints members,
approves actions, gov standards, inspections, and investigations? It is a private group and
OVERSEES. AUDITORS?
U.S. Gov agency that collects and regulates income taxes. Their primary goal is to collect
revenue. IRS
Economic income and accounting income books. & Tax income, and cash flow books.
There are two sets of books. Tax Books and Financial accounting books.
Similar to the FASB, but not 100% the same. It is international, everywhere but the U.S.
IASB: Internatonal Accounting Standard Board
Who enforces and national policies. Barriers to international convergence are?
Condorsement Rules set centrally, but legally adopted and enforced locally?
The SEC, SOX, and PCAOB.To increase government regulation, one would use:
Reduce uncertainty and allows lenders and investors to target their financing and investing to
the level of risk they are willing to take. Financial statements
Adudit A financial statement that furthermore decreases uncertainty.
Income Statement Provides accountants the best attempt at measuring the economic
performance of a company.
Balance sheet Mother of all financial statements.
Accounting equation Assets=liabilities+equity
Assets (resoures) Resources owned or controlled by a company that will provide
probable future economic benefit.
Liabilities (obligations) Obligations that require the probable future sacrifice of
economic benefits in the form of the transfer of assets or the providing of services.
Equity Investment amount in the business PLUS how much profit they have left in the
business. L-A=E
1 paid in capital, 2 retained earnings, 3 treasure stock, 4 accumulated other comprehensive
income. Owners Equity
PIC: Paid in capital The amount originally paid in exchange for share of stock
Retained earnings CUMMULATIVE earnings that have been retained in the business
Treasury stockCompany buys back its own shares of stock, shown as a subtraction from
equity.
AOCI: Accumulated other comprehensive income.Market related gains and losses that are
not included on the income statement. MARKET EVENTS that result in an increase or
decrease in equity are:
Classified balance sheet Breaking items down into current and long term results
(current=with in one year)
Entity Concept small and large businesses
International Property rules What allows property, plant, and equipment (PPE) to be
reported at CURRENT APPRISED VALUE rather than historical cost?
NO Are assets recorded at liquidity prices?
Revenue, expenses, and net income. The income statement contains what three things?
Income statement equation Revenue-Expenses=Net Income
, Revenue (gains) Amount of assets created from the sale of goods or services. Also,
REVENUE CAN BE GENERATED BY SATISFYING LIABILITIES. One SOURCE of an
asset.
Expenses (losses) Amnt of ASSETS CONSUMED in generating revenues. Expenses are
also used when liabilities are created in generating revenues. one USE of an asset. It is ONE
way to create a liability.
NEVER. Divedends are not expenses. Are Dividends located on the income statement?
Net income Overall measure of a companies economic performance during a period of
time.
Never Are revenues assets?
Never Are expenses liabilities?
Earnings per share (EPS) Net income / outstanding number of share stock.
Revenue recognition Recognize revenue when value has been delivered to the customers.
Not before or after.
Operating, investing, and financing activitiesStatement of cash flows. Inflow of cash comes
from what three activities.
Operating activities Things that a business does every day hundreds of times
Investing activities NOT investing in stock or bonds. It is investing in the productive
capacity of the business. Time to time things, not usually daily, Ex: buying, selling long term
assets such as buildings, equipment, land.
Financing activities Obtaining the capital or financing that a business requires to buy
needed resources. Time to time things, not every day. Ex: Borrowing, repaying, receiving
cash invested by shareholders, and paying dividends.
Summary of significant accounting policies, additional info about summary totals, disclosure
of info not recognized, and supplementary info. Notes to the financial statement:
The SEC The external audit is enforced by what?
External. But, private companies who want to provide assurance to a banker or new investor
may do an external audit too. Public companies by law have to do what kind of audit?
Become a CPA (certified public accountant), CE, CPA exam, and be completely
INDEPENDENT to any company you audit. To become an external auditor you have to?
General accepted accounting principles (GAAP), and General accured auditory standards
(GAAS). Certifies that the companies information is not misleading. An audit certifies
what two things?
NO. An audit does NOT certify that a company is good or not good to invest in. It does
certify that a company is following GAAP, and GAAS. Does an audit ensure that a
company is a good investment for a possible investor?
Relevance: FAST, but not precise/certain. Reliability: Can count on it. Slow, carefully
verified, precise, historically in the past, this was used most often. Relevance Vs. Reliability
Comparability Across time for the same company and across company at same point.
Subcategory is consistency.
Conservatism Telling bad news immediately, wait on good news till you are positive about
it. Lenders encourage this.
Materiality size of the thing that makes a difference and could impact decisions. Important
to auditors. If an item is material, it equals or exceeds 2% of the sales, or 5% of owners
equity, or 10% of net income.
Never Does materiality replace accounting judgment?
Articulation Details. All three financial statements are not isolated but rather an integrated
set of reports on a companies financial status.
Statement of cash flows. What contains detailed explanation of why the balance sheet
cash amount changed form beginning to end of the year?
