2301 Online Midterm Exam Study Guide

Financial Accounting – 2301 Midterm Exam Study Guide Chapter 1 Purposes of and differences et!een financial accounting"management accounting"tax accounting# Financial acct – the area of acct that refers to p roviding info to support external investment and credit decisions; provides information about the financial resources, obligations, and activities of an economic entity that is intended for use primarily by external decision makers—investors and creditors Management Accounting – area of acct that refers to providing info to support internal management decisions; information is primarily used by internal management in decision making required to run the business Tax Accounting – a specialized field within accou nting; tax returns are based on financial accounting information, but the information often is adjusted or reorganized to conform with income tax reporting requirements; it results from a different system and complies with specialized legal requirements that relate to a companys responsibility to pay an appropriate amount o f taxes! Nature of accounting systems $ consists of the personnel, procedures, technology, and records used by an organization "#$ to develop accounting information and "%$ to communicate this information to decision makers! &n developing information about the activities of a business, every accounting system performs the following basic functions' #! Interpret and r ecord the effects of b usiness transactions! %! Classify the effects of similar transactions in a manner that permits determination of the various totals and subtotals useful to management and used in accounting reports! (! Summarize and communicate the information contained in the system to decision makers! )hether for a large or small business, the basic purpose of the accounting system remains the same' to meet the organizati on's needs for information as efficiently as possible Purpose and objectives of Generally Accepted Accounting Principles (GAAP) acct principles t%at pro&ide t%e frame!or' for determining !%at information is to e included in financial statements and %o! t%e info is to e prepared and presented; includes broad principles of measurement and presentation, as well as detailed rules that are used by professional accountants in preparing accounting information and reports ( refers to the accounting concepts in use in the *nited +tates Purposes!Authority of "ecurities and #$change Commission ("#C) and Financial Accounting "tandards %oard (FA"%) SE) – go&*t agency t%at %as t%e legal po!er to estalis% acct principles and financial reporting re+uirements for pulicly %eld co in t%e ,S( generally adopts the recommendations of the -+. "discussed below$, rather than develop its own set of accounting principles! /hus, accounting principles continue to be developed in the private sector but are given the force of law when they are adopted by the +01! FAS- – a pri&ate sector org t%at estalis%es generally accepted acct standards in t%e ,S( !or's closely !" SE)( has compiled all of its standards, and those of its predecessors, in an -ccounting +tandards 1odification; it is part of the private sector of the economy— it is not a governmental agency. Nature of "arbanes &$ley Act!Purpose of Public Company Accounting &versight %oard

2301 Online Midterm Exam Study Guide

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