Intermediate Accounting Chapter 1
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 alm.ost 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.
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 alm.ost 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.
