ACG 4101 Ch. 1
Primary Focus of Financial Accounting - answer Providing financial information to
various external users
Investors
Creditors
Other external users
Investors & creditors use different kinds of information to ? - answer-To predict the
future risk and return
Financial statements - answerbalance sheet, income statement, statement of cash
flows, statement of shareholders equity
Cash Basis Accounting - answer• Measurement of cash receipts and cash payments
• Difference is net operating cash flow
Accrual Basis Accounting - answer• Measurement of revenues and expenses
• Difference is net income or net loss
What is GAAP? - answerGAAP is a set of both broad and specific guidelines that
companies should follow when measuring and reporting the information in their financial
statements and related notes
How does GAAP facilitate decision making by investors and creditors? - answerby
helping them understand information and enhancing the comparability of that
information among companies
Role of an Auditor - answer-Offer credibility to financial statements
-Express an opinion on the compliance of financial statements with GAAP
-Licensed by states to provide audit services—certified public accountants (CPAs)
Sarbanes-Oxley Act - answer-Oversight board
-Corporate executive accountability
-Nonaudit services
-Retention of work papers
-Auditor rotation
-Conflicts of interest
-Hiring of auditor
-Internal control
The Conceptual Framework - answer-Provides an underlying foundation for accounting
standards
-Disseminated by FASB through Statements of Financial Accounting Concepts (SFACs)
Primary Focus of Financial Accounting - answer Providing financial information to
various external users
Investors
Creditors
Other external users
Investors & creditors use different kinds of information to ? - answer-To predict the
future risk and return
Financial statements - answerbalance sheet, income statement, statement of cash
flows, statement of shareholders equity
Cash Basis Accounting - answer• Measurement of cash receipts and cash payments
• Difference is net operating cash flow
Accrual Basis Accounting - answer• Measurement of revenues and expenses
• Difference is net income or net loss
What is GAAP? - answerGAAP is a set of both broad and specific guidelines that
companies should follow when measuring and reporting the information in their financial
statements and related notes
How does GAAP facilitate decision making by investors and creditors? - answerby
helping them understand information and enhancing the comparability of that
information among companies
Role of an Auditor - answer-Offer credibility to financial statements
-Express an opinion on the compliance of financial statements with GAAP
-Licensed by states to provide audit services—certified public accountants (CPAs)
Sarbanes-Oxley Act - answer-Oversight board
-Corporate executive accountability
-Nonaudit services
-Retention of work papers
-Auditor rotation
-Conflicts of interest
-Hiring of auditor
-Internal control
The Conceptual Framework - answer-Provides an underlying foundation for accounting
standards
-Disseminated by FASB through Statements of Financial Accounting Concepts (SFACs)
