Chapter 1 ACG 4101
Financial Accounting – answer Chiefly concerned with providing financial information to
various external users
Financial Intermediaries - answer(financial analysts, stockbrokers, mutual fund
managers, credit rating organizations) these users are provide advice to investors and
creditors and/or make investment-credit decisions on their behalf
Financial Reporting – answer process of providing information to external users
through financial statements and related disclosure notes - answer Primary means of
conveying financial information to investors, creditors, and other external users
Profit oriented companies, non for profit entities, households – answer Providers of
financial information
investors, creditors (banks, bondholders, lenders), employees, labor unions, customers,
suppliers, government agencies, financial intermediaries - answerExternal User groups
is on the information needs of investors and creditors - answerprimary focus of
accounting
Free enterprise economy - answereconomy to operate efficiently, resources should be
allocated to private enterprises that will use them best to provide the goods and
services desired by society, not to those who waste them
capital markets - answermechanisms that foster an efficient allocation of resources; a
composite of all investors and creditors
proprietorship, partnership, corporation - answerthree primary forms of business
corporation - answerdominant form of business organization that acquires capital from
investors in exchange for ownership interest and from creditors by borrowing
initial market transactions - answerprovide for new cash by the ISSUANCE of stocks
and bonds by the corporation
secondary market transactions - answerprovide for the TRANSFER of stocks and bonds
by the corporation
Expected rate of return (formula) - answerdividends + change in price / initial investment
, Primary objective of financial accounting - answerprovide investors and creditors with
USEFUL information that will help them make investment and credit decisions
accrual accounting - answermeasurement of the entity's accomplishments and resource
sacrifices during the period, regardless of when cash is received or paid
Cash basis accounting - answerhelps predict future cash flows; with net operating cash
flow
net operating cash flow - answerdifference between cash receipts and cash
disbursements during reporting period from transactions related to providing goods and
services to customers; may not be good indicator of long run cash generating ability
net income - answerdifference between revenues and expenses
Generally Accepted Accounting Principles (GAAP) - answerset of both broad and and
specific guidelines that companies should follow when measuring and reporting the
information int their financial statements and related notes
so investors can compare financial information across companies to make resource
allocation decisions - answerWhy is GAAP important to follow?
1933 Securities Act - answersets forth accounting and disclosure requirements for initial
offerings of securities (stocks and bonds)
1934 Securities Act - answerapplies to secondary market transactions and mandates
reporting requirements for companies whose securities are publicly traded on either
organized stock exchanges or in over the counter markets
Securities and Exchange Commission (SEC) - answerresponsible for setting accounting
and reporting standards for companies whose securities are publicly traded; they have
delegated the task to the private sector; issues Releases and Bulletins
it can force a change in the standard - answerIf SEC does not agree with standards set
forth b the private sector?
Committee on Accounting Procedure (CAP) - answerfirst private sector body that was
delegated the task of setting accounting standards
American Institute of Accountants (AIA) - answerCAP was a committee of
American Institute of Accountants (AIA) - answerrenamed American Institute of Certified
Public Accountants (AICPA) in 1957, is the national professional organization for
certified public accountants
Financial Accounting – answer Chiefly concerned with providing financial information to
various external users
Financial Intermediaries - answer(financial analysts, stockbrokers, mutual fund
managers, credit rating organizations) these users are provide advice to investors and
creditors and/or make investment-credit decisions on their behalf
Financial Reporting – answer process of providing information to external users
through financial statements and related disclosure notes - answer Primary means of
conveying financial information to investors, creditors, and other external users
Profit oriented companies, non for profit entities, households – answer Providers of
financial information
investors, creditors (banks, bondholders, lenders), employees, labor unions, customers,
suppliers, government agencies, financial intermediaries - answerExternal User groups
is on the information needs of investors and creditors - answerprimary focus of
accounting
Free enterprise economy - answereconomy to operate efficiently, resources should be
allocated to private enterprises that will use them best to provide the goods and
services desired by society, not to those who waste them
capital markets - answermechanisms that foster an efficient allocation of resources; a
composite of all investors and creditors
proprietorship, partnership, corporation - answerthree primary forms of business
corporation - answerdominant form of business organization that acquires capital from
investors in exchange for ownership interest and from creditors by borrowing
initial market transactions - answerprovide for new cash by the ISSUANCE of stocks
and bonds by the corporation
secondary market transactions - answerprovide for the TRANSFER of stocks and bonds
by the corporation
Expected rate of return (formula) - answerdividends + change in price / initial investment
, Primary objective of financial accounting - answerprovide investors and creditors with
USEFUL information that will help them make investment and credit decisions
accrual accounting - answermeasurement of the entity's accomplishments and resource
sacrifices during the period, regardless of when cash is received or paid
Cash basis accounting - answerhelps predict future cash flows; with net operating cash
flow
net operating cash flow - answerdifference between cash receipts and cash
disbursements during reporting period from transactions related to providing goods and
services to customers; may not be good indicator of long run cash generating ability
net income - answerdifference between revenues and expenses
Generally Accepted Accounting Principles (GAAP) - answerset of both broad and and
specific guidelines that companies should follow when measuring and reporting the
information int their financial statements and related notes
so investors can compare financial information across companies to make resource
allocation decisions - answerWhy is GAAP important to follow?
1933 Securities Act - answersets forth accounting and disclosure requirements for initial
offerings of securities (stocks and bonds)
1934 Securities Act - answerapplies to secondary market transactions and mandates
reporting requirements for companies whose securities are publicly traded on either
organized stock exchanges or in over the counter markets
Securities and Exchange Commission (SEC) - answerresponsible for setting accounting
and reporting standards for companies whose securities are publicly traded; they have
delegated the task to the private sector; issues Releases and Bulletins
it can force a change in the standard - answerIf SEC does not agree with standards set
forth b the private sector?
Committee on Accounting Procedure (CAP) - answerfirst private sector body that was
delegated the task of setting accounting standards
American Institute of Accountants (AIA) - answerCAP was a committee of
American Institute of Accountants (AIA) - answerrenamed American Institute of Certified
Public Accountants (AICPA) in 1957, is the national professional organization for
certified public accountants
