,Table of Contents
1. Environment and Theoretical Structure of Financial Accounting
2. Review of the Accounting Process
3. The Balance Sheet and Financial Disclosures
4. The Income Statement, Comprehensive Income, and the Statement of Cash Flows
5. Time Value of Money Concepts
6. Revenue Recognition Section 2: Assets
7. Cash and Receivables
8. Inventories: Measurement
9. Inventories: Additional Issue
10. Property, Plant, and Equipment and Intangible Assets: Acquisition
11. Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition
12. Investments Section 3: Liabilities and Shareholders’ Equity
13. Current Liabilities and Contingencies
14. Bonds and Long-Term Notes
15. Leases
16. Accounting for Income Taxes
17. Pensions and Other Postretirement Benefits
18. Shareholders’ Equity Section 4: Additional Financial Reporting Issues
19. Share-Based Compensation and Earnings per Share
20. Accounting Changes and Error Corrections
21. The Statement of Cash Flows Revisited
,Chapter 1 Environment and Theoretical Structure of st s t st st st st
Financial Accounting st
Question 1–1 st
Financial accounting is concerned with providing relevant financial information abo st st st st st st st st st
ut various kinds of organizations to different types of external users. The primary focus of
st st st st st st st st st st st st st st st
financial accounting is on the financial information provided by profit-
st st st st st st st st st
oriented companies to their present and potential investors and creditors.
st st st st st st st st st st
Question 1–2 st
Resources are efficiently allocated if they are given to enterprises that will use them t st st st st st st st st st st st st st st
o provide goods and services desired by society and not to enterprises that will waste them
st st st st st st st st st st st st st st st
. The capital markets are the mechanism that fosters this efficient allocation of resources.
st st st st st st st st st s t st st st
Question 1–3 st
Two extremely important variables that must be considered in any investment decisi
st st st st st st st st st st st
on are the expected rate of return and the uncertainty or risk of that expected return.
st st st st st st st st st st st st st st st
Question 1–4 st
In the long run, a company will be able to provide investors and creditors with a rate o
st st st st st st st st st st st st st st st st st
f return only if it can generate a profit. That is, it must be able to use the resources provided
st st st st st st st st st st st st st st st st st st st s
to it to generate cash receipts from selling a product or service that exceed the cash disburs
t st st st st st st st st st st st st st st st st
ements necessary to provide that product or service.
st st st st st st st
Question 1–5 st
The primary objective of financial accounting is to provide investors and creditors
st st st st st st st st st s t st st
with information that will help them make investment and credit decisions.
st st st st st st st st st st
Question 1–6 st
Net operating cash flows are the difference between cash receipts and cash disburse
st st st st st st st st st st st st
ments during a period of time from transactions related to providing goods and services t
st st st st st st st s t st st st st st st
o customers. Net operating cash flows may not be a good indicator of future cash flows be
st st st st st st st st st st st st st st st st
cause, by ignoring uncompleted transactions, they may not match the accomplishments a
st st st st st st st st st st st
nd sacrifices of the period.
st st st st
, Question 1–7 st
GAAP (generally accepted accounting principles) are a dynamic set of both broad a
st st st st st st st st s t st st st
nd specific guidelines that a company should follow in measuring and reporting the infor
st st st st st st st st st s t st st st
mation in their financial statements and related notes. It is important that all companies f
st st st st st st st s t s t st st st st st
ollow GAAP so that investors can compare financial information across companies to ma
st st st st st st st st st st st st
ke their resource allocation decisions.
st st st st
Question 1–8 st
In 1934, Congress created the SEC and gave it the job of setting accounting and repor
st st st st st st st st st st st st st st st
ting standards for companies whose securities are publicly traded. The SEC has retained t
st st st st st st st st st st st st st
he power, but has relied on private sector bodies to create the standards. The current privat
st st st st st st st st st st st st st st st
e sector body responsible for setting accounting standards is the FASB.
st st st st st st st st st st
Question 1–9 st
Auditors are independent, professional accountants who examine financial statemen
st st st st st st st st
ts to express an opinion. The opinion reflects the auditors‘ assessment of the statements' fa
st st st st st st st st st st st st st st
irness, which is determined by the extent to which they are prepared in compliance with G
st st st st st st st st st st st st st st st
AAP. The auditor adds credibility to the financial statements, which increases the confid
s t st st st st st st st st st st st
ence of capital market participants relying on that information.
st st st st st st st st
1. Environment and Theoretical Structure of Financial Accounting
2. Review of the Accounting Process
3. The Balance Sheet and Financial Disclosures
4. The Income Statement, Comprehensive Income, and the Statement of Cash Flows
5. Time Value of Money Concepts
6. Revenue Recognition Section 2: Assets
7. Cash and Receivables
8. Inventories: Measurement
9. Inventories: Additional Issue
10. Property, Plant, and Equipment and Intangible Assets: Acquisition
11. Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition
12. Investments Section 3: Liabilities and Shareholders’ Equity
13. Current Liabilities and Contingencies
14. Bonds and Long-Term Notes
15. Leases
16. Accounting for Income Taxes
17. Pensions and Other Postretirement Benefits
18. Shareholders’ Equity Section 4: Additional Financial Reporting Issues
19. Share-Based Compensation and Earnings per Share
20. Accounting Changes and Error Corrections
21. The Statement of Cash Flows Revisited
,Chapter 1 Environment and Theoretical Structure of st s t st st st st
Financial Accounting st
Question 1–1 st
Financial accounting is concerned with providing relevant financial information abo st st st st st st st st st
ut various kinds of organizations to different types of external users. The primary focus of
st st st st st st st st st st st st st st st
financial accounting is on the financial information provided by profit-
st st st st st st st st st
oriented companies to their present and potential investors and creditors.
st st st st st st st st st st
Question 1–2 st
Resources are efficiently allocated if they are given to enterprises that will use them t st st st st st st st st st st st st st st
o provide goods and services desired by society and not to enterprises that will waste them
st st st st st st st st st st st st st st st
. The capital markets are the mechanism that fosters this efficient allocation of resources.
st st st st st st st st st s t st st st
Question 1–3 st
Two extremely important variables that must be considered in any investment decisi
st st st st st st st st st st st
on are the expected rate of return and the uncertainty or risk of that expected return.
st st st st st st st st st st st st st st st
Question 1–4 st
In the long run, a company will be able to provide investors and creditors with a rate o
st st st st st st st st st st st st st st st st st
f return only if it can generate a profit. That is, it must be able to use the resources provided
st st st st st st st st st st st st st st st st st st st s
to it to generate cash receipts from selling a product or service that exceed the cash disburs
t st st st st st st st st st st st st st st st st
ements necessary to provide that product or service.
st st st st st st st
Question 1–5 st
The primary objective of financial accounting is to provide investors and creditors
st st st st st st st st st s t st st
with information that will help them make investment and credit decisions.
st st st st st st st st st st
Question 1–6 st
Net operating cash flows are the difference between cash receipts and cash disburse
st st st st st st st st st st st st
ments during a period of time from transactions related to providing goods and services t
st st st st st st st s t st st st st st st
o customers. Net operating cash flows may not be a good indicator of future cash flows be
st st st st st st st st st st st st st st st st
cause, by ignoring uncompleted transactions, they may not match the accomplishments a
st st st st st st st st st st st
nd sacrifices of the period.
st st st st
, Question 1–7 st
GAAP (generally accepted accounting principles) are a dynamic set of both broad a
st st st st st st st st s t st st st
nd specific guidelines that a company should follow in measuring and reporting the infor
st st st st st st st st st s t st st st
mation in their financial statements and related notes. It is important that all companies f
st st st st st st st s t s t st st st st st
ollow GAAP so that investors can compare financial information across companies to ma
st st st st st st st st st st st st
ke their resource allocation decisions.
st st st st
Question 1–8 st
In 1934, Congress created the SEC and gave it the job of setting accounting and repor
st st st st st st st st st st st st st st st
ting standards for companies whose securities are publicly traded. The SEC has retained t
st st st st st st st st st st st st st
he power, but has relied on private sector bodies to create the standards. The current privat
st st st st st st st st st st st st st st st
e sector body responsible for setting accounting standards is the FASB.
st st st st st st st st st st
Question 1–9 st
Auditors are independent, professional accountants who examine financial statemen
st st st st st st st st
ts to express an opinion. The opinion reflects the auditors‘ assessment of the statements' fa
st st st st st st st st st st st st st st
irness, which is determined by the extent to which they are prepared in compliance with G
st st st st st st st st st st st st st st st
AAP. The auditor adds credibility to the financial statements, which increases the confid
s t st st st st st st st st st st st
ence of capital market participants relying on that information.
st st st st st st st st
