Exam (elaborations)
ACG 5026 FSU Fennema (1).
ACG 5026 FSU Fennema (1).
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ACG 5026 FSU FennemaBalance Sheet - ANS-A financial statement that reports assets, liabilities, and owner's equity on
a specific date/at a point in time.
Lists the company's investments and sources of financing using the accounting equation
§ Assets=liabilities+equity
§ Statement of financial position
Statement of Cash Flows - ANS-A financial statement that provides financial information about
the cash receipts and cash payments of a business for a specific period of time.
§ Operating cash flows differ from net income because of differences in the time that revenues
and expenses are recorded and the time the cash is received and paid
§ Where did the money come from, where did it go
§ Operating, investing, financing
Income Statement - ANS-A financial statement showing the revenue and expenses for a fiscal
period.
Reports the results of a company's operating activities over a period of time
§ Revenues-expenses=net income
§ Statement of income, statement of earnings, statement of operations, statement of profit and
loss
statement of stockholders' equity - ANS-a financial statement that shows changes in a
corporation's ownership for a fiscal period
Contributed capital
· Amounts from issuing new stock during the period
· Common stock and additional paid-in capital
§ Retained earnings
· Cumulative income since the company began business minus dividends paid out to
shareholders
§ Other stockholders' equity changes
GAAP (Generally Accepted Accounting Principles) - ANS-§ Standards and accepted practices
designed to guide the preparation of financial statements
§ Based on underlying principles
§ Allows considerable discretion in preparation
§ Enables external users to rely on audited financial statements
, § FASB - ANS-private organization setting rules under the offices of the government (SEC)
o Currently establishes accounting standards in the US
o Developed a conceptual framework to serve as a guide for accounting issues not covered by
standards
SEC (Securities and Exchange Commission) - ANS-final say on accounting
Securities act of 1934 led to the SEC
o Regulates the issuance and trading of securities in the US
o Companies with more than $10 million of assets and whose securities are held by more than
500 owners must file annual and other periodic reports with the SEC
§ Auditor's report - ANS-· The auditor's report is a statement to the board of directors of the
company and to the shareholders of the company by an independent auditor
· It expresses an opinion as to whether the financial statements present fairly the financial
activities of the company and whether the financials were prepared in accordance with GAAP
· A "clean" audit opinion indicated that the auditors do believe the financial statements present
fairly the economic conditions of the firm. It does NOT state that the statements are "Accurate"
· Adverse opinion- something is wrong
· Going concern opinion- this company may not be around for long, even though it is correct
· Clean report- presented fairly
o Regulation and oversight SOX - ANS-§ Sarbanes-Oxley act of 2002
· Developed by Congress due to concerns over the quality of corporate financial reporting
· Goal was to increase the level of confidence that external users have in financial statements
· SOX then established the Public Accounting Oversight Board (PCAOB) to approve auditing
standards and to monitor the quality of financial statements and audits (GAAP)
· SOX means accounting is not self-regulated
Matching Principle (Expense Recognition) - ANS-§ Matching focuses on the timing of
recognition of expenses after revenue recognition has been determined
§ This principle states that the efforts of a given period (expenses) should be matched against
the benefits (revenues) they generate
§ For example, the cost of inventory is initially capitalized as an asset on the balance sheet; it is
not recorded in Cost of Goods Sold (expense) until the sale is recognized
§ Important to accrual accounting
Accrual Accounting - ANS-revenues accounted when we earn them, expenses accounted when
they occur
o Matching determines when expenses are put on the income statement
Constructing a Balance Sheet - ANS-Assets
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