Accounting the information system that shows the economic events of a corporation. This system identifies, records, and communicates all the info to intrested parties such as stockholders. Internal Users people within the company-marketing department, management dept, finance dept, ceo, cfo, cmo Ex...
ACG 2021 Exam 1 Questions and
Solutions
Accounting ✅the information system that shows the economic events of a corporation.
This system identifies, records, and communicates all the info to intrested parties such
as stockholders.
Internal Users ✅people within the company-marketing department, management dept,
finance dept, ceo, cfo, cmo
External users ✅people outside the company- shareholders, customers, creditors,
taxing authorites, labor unions, regulatory authorites, economic planners.
Sarbanes-Oxley Act ✅passed in 2002 to reduce the amount of fraud occuring in the
finanical sector. Requires top management to certify financial statements and made
punishment for misrepresentation more severe. Increased independence of auditors,
required strict internal controls, and oversight by board of directors.
SEC ✅The police force of the stock exchange
Auditor ✅makes sure the numbers a company produces makes sense, an accountant
Board of directors ✅keeps an eye on the CEO
Securities and Exchange Commission (SEC) ✅an agency of the US government that
is responsible for monitoring the US financial markets and accounting standard-setting
bodies.
FASB ✅Financial Accounting Standards Board. Private organization that sets the
accounting rules/guidelines
GAAP ✅Generally Accepted Accounting Principles. The rules/guidelines established
by FASB that accountants agree to follow when preparing finanical statements.
Relevance ✅information must be important in making a business decision.
-must have predictive value
-must have confirmatory value
-must be material
Faithful representation ✅the information must be true.
, -must be complete
-must be objective
-must be error free
Comparability ✅information must be clear enough to compare across different
companies
Assumptions ✅monetary unit assumption: only information measured in dollars is
reported in financial statements.
Economic entity assumption: every corporation has properly claassified their
transactions: no personal transactions are charged to the business.
Periodicity assumption: financial statements are broken down into logical time periods.
Going concern assumption: business will not shut down anytime soon.
Principles ✅measurement cost (historical cost principle): assets are recorded at their
original cost.
Fair value principle: assets and liabilites are listed at their "fair" value.
Full disclosure principle: companies must state all important information.
Revenue recognition principle: revenues will be recognized in the period earned.
Matching principle/expense recognition principle: expenses have to be matched to
revenues in the period that those revenues are earned/expenses are recognized when
they are incurred.
Financing activity ✅borrowing/repay money from creditors or issuing stock to
stockholders.
Investing activity ✅purchasing resources (assets) in order to operate the company.
Property, plant, and equipment. Long-term.
Operating activity ✅activities that generate revenues or incur expenses during normal
business operations; examples include selling goods and services (revenues) or payinf
for employees/electricity/supplies (expenses).
Net income ✅revenues exceed expenses
Net loss ✅The amount by which expenses exceed revenues.
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