ACG 2021 Study Guide What are the 3 forms of business organization Understand advantages and disadvantage of each form Disadvantage unlimited liability if company goes under they can take your personal items Chapter 1 1 Sole Proprietorship Simple to establish Owner controlled Tax advantages 2 Partnership Simple to establish Shared Control Broader skills and resources Tax advantages Disadvantage unlimited liability for both you and your partner 3 Corporation Easy to transfer ownership Easier to raise money No personal liability Sell ownership through stock Disadvantage double taxation Review Do it p 5 1 Financing 2 Investing 3 Operating 1 Income Statement 2 Retained Earnings 3 Balance Sheet Who are the users of financial information Users of accounting information can be divided broadly into two groups internal users and external users What are the 3 types of business activities p 9 Be able to classify an activity under the activity for example purchase of truck investing activity What are the 3 statements in a basic set of financial statements P 11 What is a statement of Cash Flows p 15 Be able to identify where an activity belongs Review E 1 12 p 32 The primary purpose of a statement of cash flows is to provide financial information about the cash receipts and cash payments of a business for a specific period of time To help investors creditors and others in their analysis of a company s cash position the statement of cash flows reports the cash effects of a company s operating investing and financing activities Understand how the financial statements are inter related P 16 We need to get net income from Income statement What order are they prepared 1 Income Statement 2 Retained Earnings 3 Balance Sheet Be able to prepare the basic set of financials if given the information know where each account belongs classification etc Know the order the financial statements are prepared and the proper heading time period Be able to calculate Current Assets PPE Current Liabilities from a list of accounts What is an auditor What is an auditor s report P 20 An outside source to verify statements that are seen by others is correct Review BE1 6 8 E 1 9 and Wiley Plus assignments Review the self test questions p 26 Chapter 2 Understand the classified balance sheet and be able to recognize for each account where it belongs on the Balance Sheet Current Assets Property Plant and Equipment Intangible assets Current Liabilities Long term Liabilities and Stockholder s Equity Study Illustration 2 2 p 49 Review financial reporting concepts p 63 66 GAAP SEC PCAOB FASB IASB What is GAAP P 63 General Accepted Accounting Principles EX Nike Adidas Puma all go by the same set of rules so it is consistent throughout all 3 companies What is the role of the SEC PCAOB FASB IASB SEC Securities and Exchange Commission is the agency of the U S government that oversees U S financial markets and accounting standard setting bodies PCAOB Public Company Accounting Oversight Board nother relatively recent change to the financial reporting environment was that as a result of the Sarbanes Oxley Act the Public Company Accounting Oversight Board PCAOB was created FASB Financial Accounting Standards Board FASB is the primary accounting standard setting body in the United States IASB International Accounting Standards Board IASB issues standards called International Financial Reporting Standards IFRS which have been adopted by many countries outside of the United States Understand the qualities of useful financial information p 64 relevance materiality faithful representation Relevance Accounting information has relevance if it would make a difference in a business decision Information is considered relevant if it provides information that has predictive value that is helps provide accurate expectations about the future and has confirmatory value that is confirms or corrects prior expectations Materiality is a company specific aspect of relevance An item is material when its size makes it likely to influence the decision of an investor or creditor Faithful Representation Faithful representation means that information accurately depicts what really happened To provide a faithful representation information must be complete nothing important has been omitted neutral is not biased toward one position or another and free from error What are the enhancing Qualities Comparability consistency verifiability timeliness and understandability p 64 In addition to the two fundamental qualities the FASB and IASB also describe a number of enhancing qualities of useful information These include comparability consistency verifiability timeliness and understandability In accounting comparability results when different companies use the same accounting principles Another characteristic that enhances comparability is consistency Consistency means that a company uses the same accounting principles and methods from year to year Information is verifiable if independent observers using the same methods obtain similar results As noted in Chapter 1 certified public accountants CPAs perform audits of financial statements to verify their accuracy For accounting information to have relevance it must be timely That is it must be available to decision makers before it loses its capacity to influence decisions The SEC requires that public companies provide their annual reports to investors within 60 days of their year end Information has the quality of understandability if it is presented in a clear and concise fashion so that reasonably informed users of that information can interpret it and comprehend its meaning What are the assumptions in financial reporting P 65 monetary unit assumption economic entity assumption periodicity assumption going concern assumption Monetary Unit Assumption The monetary unit assumption requires that only those things that can be expressed in money are included in the accounting records This means that certain important information needed by investors creditors and managers such as customer satisfaction is not reported in the financial statements Economic Entity Assumption The economic entity assumption states that every economic entity can be separately identified and accounted for In order to assess a company s performance and financial position accurately it is important to not blur company transactions with personal transactions especially those of its managers or transactions of other companies Periodicity Assumption
View Full Document
Unlocking...