A-201: Financial Accounting Study Guide
Chapter 1
Financial Accounting
A system through which managers report financial information about an economic entity to a variety of individuals who use this information for various decision making purposes.
The process of identifying, recording, summarizing, and reporting economic information to decision makers.
Managers of Companies Must Understand 2 Things:
1) Economic Consequence Perspective:
Considering and understanding how such events affect the financial statements.
2) User Orientation:
Managers must also know how to read, evaluate, and analyze financial statements.
The Annual Report:
1) The Auditor’s Report – A short letter written by the auditor that describes the activities of the audit and comments on the financial position and operations of the company. Contains 3 things:
1) States that the statements were prepared in conformity with GAAP.
2) Presents fairly the company’s financial condition and operations.
3) Confirms that the statements resulted from an effective internal control system.
2) The Management Letter – Normally states that the management is responsible for the preparation and integrity of the financial statements.
Most contain references to GAAP, ethical and social responsibilities, the quality and reliability of the company’s internal control system, the independent audit, and the audit committee of the board of directors.
The 4 Financial Statements
Generally only interested in the company’s future prospects because the future is what interests you the most.
The past of often a poor indicator of the future.
The Footnotes
Descriptions and schedules that further explain the numbers on the financial statements.
These are audited by an independent auditor and are considered part of the financial statements.
The Financial Statements
1) The Balance Sheet
Indicates the financial condition of a business as of a given point of time.
The Basic Accounting Equation: Assets = Liabilities + Stockholder Equity
1) Assets –
Financial Accounting
A system through which managers report financial information about an economic entity to a variety of individuals who use this information for various decision making purposes.
The process of identifying, recording, summarizing, and reporting economic information to decision makers.
Managers of Companies Must Understand 2 Things:
1) Economic Consequence Perspective:
Considering and understanding how such events affect the financial statements.
2) User Orientation:
Managers must also know how to read, evaluate, and analyze financial statements.
The Annual Report:
1) The Auditor’s Report – A short letter written by the auditor that describes the activities of the audit and comments on the financial position and operations of the company. Contains 3 things:
1) States that the statements were prepared in conformity with GAAP.
2) Presents fairly the company’s financial condition and operations.
3) Confirms that the statements resulted from an effective internal control system.
2) The Management Letter – Normally states that the management is responsible for the preparation and integrity of the financial statements.
Most contain references to GAAP, ethical and social responsibilities, the quality and reliability of the company’s internal control system, the independent audit, and the audit committee of the board of directors.
The 4 Financial Statements
Generally only interested in the company’s future prospects because the future is what interests you the most.
The past of often a poor indicator of the future.
The Footnotes
Descriptions and schedules that further explain the numbers on the financial statements.
These are audited by an independent auditor and are considered part of the financial statements.
The Financial Statements
1) The Balance Sheet
Indicates the financial condition of a business as of a given point of time.
The Basic Accounting Equation: Assets = Liabilities + Stockholder Equity
1) Assets –