Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
1. What is Account- Accounting is the language of business; it is a standard set of rules for measuring
ing? 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 Account- Enables managers to make corporate decisions
ing Important? Enables the general public to make investment decisions
3. Who Uses Ac- Used by a variety of organizations - from the federal government to non-profit
counting? organizations to small businesses to corporations
We will discuss accounting rules as they pertain to publicly-traded companies
4. Accounting Reg- Accounting attempts to standardize financial information and follows rules and
ulations 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 A US federal agency established by the US Congress in 1934
the SEC Primary mission is "to protect investors and maintain the integrity of the securities
, Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
markets"
Division of Corporate Finance oversees FASB
6. An Overview of Established in 1973 as an independent body to carry out the function of codifying
FASB 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:
7. International Fi- Over 100 countries, including the EU, UK, Canada, Australia, and Russia, have
nancial Report- adopted a unified set of international accounting standards (IFRS)
ing Standards Although we have seen unprecedented convergence over the last few years
(IFRS) between US GAAP and IFRS, some differences remain
8. Assumption 1: A company is considered a separate "living" enterprise, apart from its owners
Accounting Enti- In other words, a corporation is a "fictional" being
ty
9. Assumption 2: A company is considered a "going concern" for the foreseeable future; it is
Going Concern assumed to remain in existence indefinitely
10. Assumption 3: Financial statements can only show measurable activities of a corporation such as
Measurement its quantifiable resources, its liability, amount of taxes it is facing, etc.
, Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
11. Assumption 4: Companies are required to file annual and interim reports
Periodicity 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 (1) Accounting Entity
Assumptions of (2) Going Concern
Accounting (3) Measurement
(4) Periodicity
13. Principle 1: His- Financial statements report companies' resources at an initial historical cost
torical Cost Why?
Represents the easiest measurement method without a need for appraisal and
revaluation
Marking resources up to fair value allows for management discretion and subjec-
tivity, which US GAAP attempts to minimize by using historical cost
Note: IFRS allows you to write up the asset to fair value, but most companies use
historical value anyways
14. Principles 2 and Governs the company's timing in recording its revenues (i.e. sales) and associated
3: Accrual Ac- expenses
counting (Rev- 2) Revenue Recognition: Accrual basis of accounting dictates that revenues must
enue Recogni- be recorded when earned and measurable
tion and Match- 3) Matching Principle: Under the matching principle, costs associated with mak-
ing Principle) ing a product must be recorded during the same period as revenue generated
from that product
Exercise Answer: 1) 1/4/15; 2) 1/4/15
15.
, Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
Why can't com- According to the revenue recognition principle, a company cannot record revenue
panies imme- until that order is shipped to a customer (only then, is the revenue actually earned)
diately record and collection from that customer is reasonably assured
these revenues
and expenses?
16. Why shouldn't a According to the matching principle, costs associated with the production of the
company record product should be recorded in the same period as the revenue from the product's
an expense when sale
it actually buys
the item?
17. US GAAP vs. IFRS
Accrual Account-
ing
18. Principle 4: Full Companies must reveal all relevant economic information that they determine to
Disclosure make a difference to its users
Such disclosure should be accomplished in the following sections of companies'
reports:
(1) Financial statements
(2) Notes to financial statements
(3) Supplementary information
19. Four Underlying (1) Historical Cost
Principles in Ac- (2) Accrual Accounting: Revenue Recognition
counting (3) Accrual Accounting: Matching Principle
(4) Full Disclosure
20. Constraint 1: Es- Certain measurements cannot be performed completely accurately, and must
timates & Judg- therefore utilize conservative estimates and judgments
ments
Study online at https://quizlet.com/_a17f2i
1. What is Account- Accounting is the language of business; it is a standard set of rules for measuring
ing? 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 Account- Enables managers to make corporate decisions
ing Important? Enables the general public to make investment decisions
3. Who Uses Ac- Used by a variety of organizations - from the federal government to non-profit
counting? organizations to small businesses to corporations
We will discuss accounting rules as they pertain to publicly-traded companies
4. Accounting Reg- Accounting attempts to standardize financial information and follows rules and
ulations 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 A US federal agency established by the US Congress in 1934
the SEC Primary mission is "to protect investors and maintain the integrity of the securities
, Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
markets"
Division of Corporate Finance oversees FASB
6. An Overview of Established in 1973 as an independent body to carry out the function of codifying
FASB 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:
7. International Fi- Over 100 countries, including the EU, UK, Canada, Australia, and Russia, have
nancial Report- adopted a unified set of international accounting standards (IFRS)
ing Standards Although we have seen unprecedented convergence over the last few years
(IFRS) between US GAAP and IFRS, some differences remain
8. Assumption 1: A company is considered a separate "living" enterprise, apart from its owners
Accounting Enti- In other words, a corporation is a "fictional" being
ty
9. Assumption 2: A company is considered a "going concern" for the foreseeable future; it is
Going Concern assumed to remain in existence indefinitely
10. Assumption 3: Financial statements can only show measurable activities of a corporation such as
Measurement its quantifiable resources, its liability, amount of taxes it is facing, etc.
, Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
11. Assumption 4: Companies are required to file annual and interim reports
Periodicity 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 (1) Accounting Entity
Assumptions of (2) Going Concern
Accounting (3) Measurement
(4) Periodicity
13. Principle 1: His- Financial statements report companies' resources at an initial historical cost
torical Cost Why?
Represents the easiest measurement method without a need for appraisal and
revaluation
Marking resources up to fair value allows for management discretion and subjec-
tivity, which US GAAP attempts to minimize by using historical cost
Note: IFRS allows you to write up the asset to fair value, but most companies use
historical value anyways
14. Principles 2 and Governs the company's timing in recording its revenues (i.e. sales) and associated
3: Accrual Ac- expenses
counting (Rev- 2) Revenue Recognition: Accrual basis of accounting dictates that revenues must
enue Recogni- be recorded when earned and measurable
tion and Match- 3) Matching Principle: Under the matching principle, costs associated with mak-
ing Principle) ing a product must be recorded during the same period as revenue generated
from that product
Exercise Answer: 1) 1/4/15; 2) 1/4/15
15.
, Wall Street Prep: Accounting Crash Course
Study online at https://quizlet.com/_a17f2i
Why can't com- According to the revenue recognition principle, a company cannot record revenue
panies imme- until that order is shipped to a customer (only then, is the revenue actually earned)
diately record and collection from that customer is reasonably assured
these revenues
and expenses?
16. Why shouldn't a According to the matching principle, costs associated with the production of the
company record product should be recorded in the same period as the revenue from the product's
an expense when sale
it actually buys
the item?
17. US GAAP vs. IFRS
Accrual Account-
ing
18. Principle 4: Full Companies must reveal all relevant economic information that they determine to
Disclosure make a difference to its users
Such disclosure should be accomplished in the following sections of companies'
reports:
(1) Financial statements
(2) Notes to financial statements
(3) Supplementary information
19. Four Underlying (1) Historical Cost
Principles in Ac- (2) Accrual Accounting: Revenue Recognition
counting (3) Accrual Accounting: Matching Principle
(4) Full Disclosure
20. Constraint 1: Es- Certain measurements cannot be performed completely accurately, and must
timates & Judg- therefore utilize conservative estimates and judgments
ments
