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Spiceland and Sepe

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Spiceland and Sepe

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    1. Spiceland and Sepe Intermediate Accounting

    2. Environment and Theoretical Structure of Financial Accounting CHAPTER 1

    3. Financial Accounting Environment

    4. Financial Accounting Environment Relevant financial information is provided primarily through financial statements and related disclosure notes. Balance Sheet Income Statement Statement of Cash Flows Statement of Shareholders’ Equity

    5. Investment-Credit Decisions A Cash Flow Perspective Corporate shareholders will receive cash from their investments through . . . Periodic dividend distributions from the corporation. The ultimate sale of the ownership shares of stock.

    6. Investment-Credit Decisions A Cash Flow Perspective Accounting information should help investors evaluate the amount, timing, and uncertainty of the enterprise’s future cash flows.

    7. Cash Versus Accrual Accounting Cash Basis Accounting Revenue is recognized when cash is received. Expenses are recognized when cash is paid.

    8. Cash Versus Accrual Accounting Cash Basis Accounting Carter Company has sales on account totaling $100,000 per year, and collected as shown on the following slide. The company prepaid $60,000 for three years’ rent in the first year. Utilities are $10,000 per year, but in the first year only $5,000 was paid. Payments to employees are $50,000 per year. Let’s look at the cash flows.

    9. Cash Versus Accrual Accounting Cash Basis Accounting

    10. Cash Versus Accrual Accounting Cash Basis Accounting

    11. Cash Versus Accrual Accounting Accrual Accounting Revenue is recognized when earned. Expenses are recognized when incurred. Let’s reconsider the Carter Company information.

    12. Accrual Accounting Revenue is recognized when earned. Expenses are recognized when incurred. Lets reconsider the Carter Company information. Cash Versus Accrual Accounting

    13. Development of Financial Accounting

    14. Early Standard Setting Evolution of Standard-Setting Process 1938 - 1959: Committee on Accounting Procedures (CAP) 1959 - 1973: Accounting Principles Board (APB)

    15. Current Standard Setting - FASB www.fasb.org Supported by the Financial Accounting Foundation. Seven full-time, independent voting members serving for 10 years. Answerable only to the Financial Accounting Foundation. Members not required to be CPAs.

    16. Establishment of Accounting Standards A Political Process

    17. International Accounting Standards Committee (IASC) Established in 1973 to narrow the range of differences in accounting standards. Increase in international trade has motivated the IASC to attempt to eliminate alternative accounting treatments.

    18. Role of the Auditor Independent intermediary to help insure that management has in fact appropriately applied GAAP.

    19. The Conceptual Framework Accounting standards consistency. Resolve new accounting problems. Provide user benefits.

    20. The Conceptual Framework

    24. The Realization Principle

    25. Recognition and Measurement Concepts

    26. SFAC No. 6 Revenues “Inflows of assets or settlements of liabilities during a particular accounting period. Such inflows or settlements stem from delivery or production of goods or rendering of services.”

    27. SFAC No. 6 Expenses “Outflows of assets or incurrences of liabilities during a particular accounting period. Such outflows are necessary to delivery or production of goods or rendering of services.”

    28. SFAC No. 6 Gains and Losses Gains: “Increases in equity resulting from incidental transactions not associated with the company’s major business.” Losses: “Decreases in equity resulting from incidental transactions not associated with the company’s major business.”

    29. SFAC No. 6 Assets and Liabilities Assets: “Business resources that have probable future economic benefits.” Liabilities: “Probable future sacrifices of economic benefits.”

    30. SFAC No. 6 Equity Residual interest in the assets of a business entity is also known as net assets.

    31. SFAC No. 6 Investments and Distributions Investments by owners: “Increases in equity resulting from asset contribution by other entities (owners/stockholders).” Distribution to owners: “Decreases in equity resulting from the distribution of assets to other entities.”

    32. SFAC No. 6 Comprehensive Income “The change in equity resulting from the aggregate of all transactions reported in a particular accounting period, except for investments by and distributions to owners.”

    33. Question The function of financial accounting is to identify, measure and communicate financial information about economic entities to interested parties. a. True b. False

    34. Question The function of financial accounting is to identify, measure and communicate financial information about economic entities to interested parties. a. True b. False

    35. Question Accrual accounting provides a better indication of ability to generate cash flows than does information limited to the financial effects of cash receipts and cash payments. a. True b. False

    36. Question Accrual accounting provides a better indication of ability to generate cash flows than does information limited to the financial effects of cash receipts and cash payments. a. True b. False

    37. Question The primary objective of accrual basis accounting is the measurement of income. a. True b. False

    38. Question The primary objective of accrual basis accounting is the measurement of income. a. True b. False

    39. Question Generally accepted accounting principles include both standards set by various rule making bodies and certain accounting practices that have evolved over time. a. True b. False

    40. Question Generally accepted accounting principles include both standards set by various rule making bodies and certain accounting practices that have evolved over time. a. True b. False

    41. Question The major financial accounting standard setting body is the a. Accounting Principles Board b. Securities and Exchange Commission c. Financial Accounting Standards Board d. American Institute of CPAs

    42. Question The major financial accounting standard setting body is the a. Accounting Principles Board b. Securities and Exchange Commission c. Financial Accounting Standards Board d. American Institute of CPAs

    43. Question The FASB issues which of the following types of pronouncements? a. Standards b. Interpretations c. Financial Accounting Concepts d. Technical Bulletins e. All of the above

    44. Question The FASB issues which of the following types of pronouncements? a. Standards b. Interpretations c. Financial Accounting Concepts d. Technical Bulletins e. All of the above

    45. Question The Financial Accounting Standards Board develops accounting and reporting standards independent of public, business and political pressures. a. True b. False

    46. Question The Financial Accounting Standards Board develops accounting and reporting standards independent of public, business and political pressures. a. True b. False

    47. Ethics in Accounting To be useful, accounting information must be objective and reliable. Management may be under pressure to report desired results and ignore or bend existing rules.

    48. Model for Ethical Decisions Determine the facts of the situation. Identify the ethical issue and the stakeholders. Identify the values related to the situation. Specify the alternative courses of action. Evaluate the courses of action. Identify the consequences of each course of action. Make your decision and take any indicated action.

    49. End of Chapter 1

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