Wall Street Prep Accounting Crash Course Exam 2023 - 2024 with complete solutions
1.What is Accounting?: Accounting is the language of business; it is a standard set of rules for measuring a company's financial performance.
Assessing a company's financial performance is important for: The firm's officers (managers and employees)
Investors Lenders General public
Standard financial statements serve as a "yardstick" of communicating financial performance to the general public.
2.Why is Accounting Important?: Enables managers to make corporate
deci- sions
Enables the general public to make investment decisions
3.Who Uses Accounting?: Used by a variety of organizations - from the federal government to non-profit organizations to small businesses to corporations
We will discuss accounting rules as they pertain to publicly-traded companies
4.Accounting Regulations: Accounting attempts to standardize financial infor- mation and follows rules and regulations
These rules are called Generally Accepted Accounting Principles (GAAP)
In the US, the Securities and Exchange Commision (SEC) authorizes the Financial Accounting Standards Board (FASB) to determine accounting rules
GAAP comes from the Statements of Financial Accounting Standards (SFAS) issued by the FASB
5.An Overview of the SEC: A US federal agency established by the US Congress in 1934
Primary mission is "to protect investors and maintain the integrity of the securities markets"
Division of Corporate Finance oversees FASB
6.An Overview of FASB: Established in 1973 as an independent body to carry out the function of codifying accounting standards on the behalf of the SEC Composed of seven full-time members appointed for five years by the Financial Account Foundation (FAF)
Decisions are influenced by: .International Financial Reporting Standards (IFRS): Over 100 countries, including the EU, UK, Canada, Australia, and Russia, have adopted a unified set of international accounting standards (IFRS)
Although we have seen unprecedented convergence over the last few years between US GAAP and IFRS, some differences remain .Assumption 1: Accounting Entity: A company is considered a
separate "liv- ing" enterprise, apart from its owners
In other words, a corporation is a "fictional" being
9.Assumption 2: Going Concern: A company is considered a "going
concern" for the foreseeable future; it is assumed to remain in
existence indefinitely
10.Assumption 3: Measurement: Financial statements can only show
measur- able activities of a corporation such as its quantifiable
resources, its liability, amount of taxes it is facing, etc.
11.Assumption 4: Periodicity: Companies are required to file annual and
interim reports
In the US, quarterly and annual financial reports are required
An accounting year (fiscal year) is frequently aligned with the calendar
year
12.Four Underlying Assumptions of Accounting: (1) Accounting Entity
(2)Going Concern
(3)Measurement
(4)Periodicity
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