Intermediate Accounting Chapter 1 with Complete Solutions | Verified & Updated

Intermediate Accounting Chapter 1 with Complete Solutions | Verified & Updated 1. Summary of Learning Objectives Identify the major financial statements and other means of financial reporting - Companies most frequently provide (l) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners' or stockholders' equity. financial accounting - The accounting process that culminates in the preparation of financial reports for use by both internal and external parties. (p. 4). financial statements - The principal means through which a company communicates its financial information. These statements reflect the collection, tabulation, and final summarization of the accounting data. The statements most frequently provided are (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners' or stockholders' equity. Note disclosures are an integral part of a company's financial statements. (p. 4). financial reporting - Reporting of financial information other than in formal financial statements. Examples include the president's letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management's forecasts, and social or environmental impact statements. (p. 4). 2. Summary of Learning Objectives Explain how accounting assists in the efficient use of scarce resources. - Accounting provides reliable, relevant, and timely information to managers, investors, and creditors to allow resource allocation to the most efficient enterprises. Accounting also provides measurements of efficiency (profitability) and financial soundness. 3. Summary of Learning Objectives Identify the objective of financial reporting. - he objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity through equity investments and loans or corms of credit. Information that is decision-useful to investors may also be helpful to ther users of financial reporting who are not investors. objective of financial reporting - Goal for financial accounting and reporting, established by the accounting profession, which is to provide information about the reporting entity that is useful to present and potential to equity investors, lenders, and other creditors in decisions about providing resources to the entity. (p. 5). general-purpose financial statements - Provide financial reporting information to a wide variety of users at the least cost. (p. 5). entity perspective - The view that companies are distinct and separate from their owners (present shareholders). (p. 6). decision-usefulness - Approach that requires that financial reporting be useful to investors by helping them assess (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments. (p. 6). accrual-basis accounting - Accounting approach, in which a company records events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash. Thus, a company recognizes revenues when it earns them rather than when it receives cash, and it recognizes expenses when it incurs them rather than when it pays them. (p. 7). 4. Summary of Learning Objectives Explain the need for accounting standards. - The accounting profession has atmpted to develop a set of standards that is generally accepted and universally practiced. Readers of financial statements would have to familiarize themselves with every company's peculiar accounting and reporting practices. As a result, it would be lmpossible to prepare statements that could be compared. generally accepted accounting principles (GAAP) - The common set of accounting standards and procedures, for which either an authoritative accounting rule-making body has established a principle of reporting in a given area, or over time, a given practice has been accepted as appropriate because of its universal application. (p. 7). 5. Summary of Learning Objectives Identify the major policy-setting bodies and their role in the standard-setting process. - The Securities and Exchange Commission (SEC) is a federal agency that has the broad powers to prescribe, in whatever detail it desires, the accounting standards to be employed by companles that fall within its jurisdiction. The American Institute of Certified Public Accountants (AICPA) issued standards through its Committee on Accounting Procedure and Accounting Principles Board. The financial Accounting Standards Board (FASB) establishes and improves standards of financial accounting and reporting for the guidance and education of the public