Intermediate Accounting Ch. 1., Exercises of Advanced Education

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Managerial Accounting - The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations. Financial Accounting - The process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties. Users include investors, creditors, managers, unions, and government entities. Essential characteristics of accounting - (1) The identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties. Objective of financial reporting - The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity. General-purpose financial statements provide: - at the least cost the most useful information possible. Primary users of general-purpose financial statements: - investors and creditors. *Primary user groups are not management, regulators, or some other non-investor groups. Entity perspective: - companies are viewed as separate and distinct from their owners (present shareholders). investors are interested in: - (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments. Accrual-basis accounting: - ensures that a company records events that change its financial statements in the period in which the events occur, rather than only in the periods in which it receives or pays cash. A company: (1) Recognizes revenues when it provides the goods or services rather than when it receives cash. (2) Recognizes expenses when it incurs them rather than when it pays them. "Generally accepted" - Means either that an authoritative accounting rule-making body has established a principle of reporting in a given area or that over time a given practice has been accepted as appropriate because of its universal application.