Intermediate Accounting Exam 1 Study Guide with Complete Solutions | 100% Pass

Intermediate Accounting Exam 1 Study Guide with Complete Solutions | 100% Pass What is GAAP? - Standards by which accounting info is prepared and presented to external users. (FASB is source for GAAP through Accounting Standards Codification) What are the means of Financial Reporting except Financial Statements? - To provide financial information about the reporting entity that is useful to present/potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers (can be done through President's letter, prospectuses, reports filed with the SEC & other gov't agencies, news releases & management forecasts, and social/environmental impact statements) What are the major financial statements (5) and their purpose? - -Income Statement: Ultimately shows net income by providing revenues, expenses, gains, losses, and profitability -Statement of Changes in Stockholders' Equity: Prepares retained earnings, changes in equity -Balance sheet: Shows Assets= Liability + Owner's Equity ( resources and sources of assets) -Statement of Cash Flow -Statement of Comprehensive Income: Shows ALL gains and losses What organizations were responsible for setting US accounting standards? - -SEC (Security & Exchange Commission): Federal agency w/ authority to prescribe accounting standards to be employed by companies that fall within its jurisdiction -CAP (Committee on Accounting Procedure): Issued standards from AICPA -APB (The Accounting Principles Board): Issued standards from AICPA -FASB (Financial Accounting Standards Board): Establishes and improves standards of financial accounting and reporting for the guidance and education of the public Who sets US and IFRS accounting standards now? - FASB & IASB Are there global accounting standards in the world? - GAAP & International Financial Reporting Standards (IFRS) which is issued by the International Accounting Standards Board (IASB) What were the main changes introduced in accounting by Sarbanes-Oxley act? - Established the Public Company Accounting Oversight Board (PCAOB), stronger independent rules for auditors, requires CEOs and CFOs to perosnaly sign off on financial statements, audit committees to be made up of independent members and members with financial expertise, and requires code of ethics for senior officers What is the main objective of financial reporting? - To provide information that is useful to present and potential investors, lenders, and other creditors in making decisions in their capacity as capital providers. Information helpful to capital providers may also be helpful to other users who are not capital providers Qualitative characteristics of accounting information: 1. What are fundamental qualities of useful information? 2. What are the enhancing qualities of useful information? - 1. Relevance (capable of making a difference in decision) and faithful representation (numbers/descriptions must faithfully represent what really happened). 2. Comparability (info that is measured & reported in a similar manner for different companies [consistency]), Verifiability (independent measures obtain similar results), Timeliness (info is available to decision-maker before it loses