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Understanding the basic of financial reporting

26 important questions on Understanding the basic of financial reporting

Who are the two most common types of external users and how do they use accounting?

- investors (owners): use accounting information to decide whether to buy, hold or sell ownership shares of a company
- creditors (such as suppliers and bankers): use accounting information to evaluate the risk of granting credit or lending money

What is the basic accounting equation?

Assets = liabilities + equity

What si equity?

The ownership claim on a company's total assets

What does accounting consist of?

Accounting consist of three basci activities: it identifies, records and communicates the economic events of an organisation to interested users

What is a comprehensive income statement?

A financial statement that presents items that are not included in the determination of net income, referred to as other comprehensive income

What is an economic entity assumption?

An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner all other economic entities

What is the expanded accounting equation?

Assets = liabilities + share capital - ordinary + revenue - expenses - dividends

What is the fair value principle?

An accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

What is a faithful representation?

Numbers and descriptions match what really existed or happened, they are factual

What is the financial accounting standards board (FASB)?

A private organisation that establishes generally accepted accounting principles in the United States (GAAP)

What is the forensic accounting?

An area of accounting that uses accounting, auditing and investigative skills to conduct investigations into theft and fraud

What is the historical cost principle?

An accounting principle that states that companies should record assets at their cost

What is the income statement?

A financial statement that present the revenues and expenses and resulting net income or net loss of a company for a specific period of time

What is the International Accounting Standards Board (IASB)

An accounting standard-setting body that issues standards adopted by many countries outside of the United States

What si the International Financial Reporting Standards (IFRS)?

International accounting standards set by the International Accounting standards board (IASB)

What si the generally accepted accounting principles (GAAP)?

Common U.S. Standards that indicate how to report economic events

What is the managing consulting?

An area of public accounting ranging from development of accounting and computer system to support services for marketing projects and merger and acquisition activities

What si the managerial accounting?

The field of accounting that provides internal reports to help users make decisions about their companies

What is the monetary unit assumption?

An assumption stating that companies include in the accounts records only transition data that can be expressed in terms of money

What si the net loss?

The amount by which expenses exceed revenues

What is the private (or managerial) accounting?

An area of accounting within a company that involves such activities as cost accounting, budgeting, design and support of accounting information system, and tax planning and preparation

What is public accounting?

An area of accounting in which the accountant offers expert service to the general public

Retained earnings statement?

A financial statement that summarises the changes in retained earnings for a specific period of time

What is the share capital - ordinary?

Amounts paid in by shareholders for the ordinary shares they purchase

What is the statement of cash flows?

A financial statement that summarise information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time

What is the statement of financial position (balance sheet)?

A financial statement that reports the assets, liabilities and equity of a company at a specific date

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Accounting and financial reporting

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