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Questions and Answers
What is the primary purpose of financial reporting?
What is the primary purpose of financial reporting?
Which of the following is NOT a type of accounting standard?
Which of the following is NOT a type of accounting standard?
What is the term for costs that are directly traceable to the production of a good or service?
What is the term for costs that are directly traceable to the production of a good or service?
Which financial statement presents an organization's inflows and outflows of cash over a specific period of time?
Which financial statement presents an organization's inflows and outflows of cash over a specific period of time?
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What is the purpose of accounting standards?
What is the purpose of accounting standards?
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What is the term for factors that influence the cost of production?
What is the term for factors that influence the cost of production?
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What is the primary purpose of a financial statement audit?
What is the primary purpose of a financial statement audit?
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Which cost accounting method assigns costs to specific activities or tasks?
Which cost accounting method assigns costs to specific activities or tasks?
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What is the primary purpose of budgeting?
What is the primary purpose of budgeting?
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Which type of audit examines the organization's operations and internal controls?
Which type of audit examines the organization's operations and internal controls?
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What is the purpose of variance analysis in budgeting?
What is the purpose of variance analysis in budgeting?
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What is the primary characteristic of zero-based budgeting?
What is the primary characteristic of zero-based budgeting?
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Study Notes
Financial Reporting
- Purpose: to provide stakeholders with financial information about an organization
- Key elements:
- Balance sheet: presents the organization's financial position at a specific point in time
- Income statement: presents the organization's financial performance over a specific period of time
- Cash flow statement: presents the organization's inflows and outflows of cash over a specific period of time
- Financial reporting frameworks:
- Generally Accepted Accounting Principles (GAAP)
- International Financial Reporting Standards (IFRS)
Accounting Standards
- Purpose: to ensure consistency and comparability in financial reporting
- Types of accounting standards:
- GAAP (US)
- IFRS (International)
- Local standards (e.g. ASPE in Canada)
- Key accounting standards:
- Accounting for assets (e.g. property, plant, and equipment)
- Accounting for liabilities (e.g. accounts payable, long-term debt)
- Accounting for equity (e.g. common stock, retained earnings)
Cost Accounting
- Purpose: to determine the cost of producing goods or services
- Key concepts:
- Direct costs: directly traceable to the production of a good or service (e.g. labor, materials)
- Indirect costs: not directly traceable to the production of a good or service (e.g. overhead)
- Cost drivers: factors that influence the cost of production (e.g. volume, complexity)
- Cost accounting methods:
- Job costing: assigns costs to specific jobs or projects
- Process costing: assigns costs to specific processes or departments
- Activity-based costing: assigns costs to specific activities or tasks
Auditing
- Purpose: to provide assurance that financial statements are accurate and reliable
- Types of audits:
- Financial statement audit: examines the financial statements and underlying records
- Operational audit: examines the organization's operations and internal controls
- Compliance audit: examines the organization's compliance with laws and regulations
- Audit process:
- Planning: determine the scope and objectives of the audit
- Fieldwork: gather evidence and perform procedures
- Reporting: issue an audit report with findings and recommendations
Budgeting
- Purpose: to plan and manage an organization's financial resources
- Key concepts:
- Budget: a financial plan that outlines projected income and expenses
- Forecasting: predicting future financial outcomes
- Variance analysis: analyzing the difference between actual and budgeted results
- Budgeting methods:
- Incremental budgeting: based on previous year's budget with adjustments
- Zero-based budgeting: starts from a "zero balance" and justifies every expense
- Activity-based budgeting: allocates costs to specific activities or tasks
Financial Reporting
- Provides stakeholders with financial information about an organization
- Comprises three key elements:
- Balance sheet: presents the organization's financial position at a specific point in time
- Income statement: presents the organization's financial performance over a specific period of time
- Cash flow statement: presents the organization's inflows and outflows of cash over a specific period of time
- Two main financial reporting frameworks:
- Generally Accepted Accounting Principles (GAAP)
- International Financial Reporting Standards (IFRS)
Accounting Standards
- Ensure consistency and comparability in financial reporting
- Types of accounting standards:
- GAAP (US)
- IFRS (International)
- Local standards (e.g. ASPE in Canada)
- Key accounting standards:
- Accounting for assets (e.g. property, plant, and equipment)
- Accounting for liabilities (e.g. accounts payable, long-term debt)
- Accounting for equity (e.g. common stock, retained earnings)
Cost Accounting
- Determines the cost of producing goods or services
- Key concepts:
- Direct costs: directly traceable to the production of a good or service (e.g. labor, materials)
- Indirect costs: not directly traceable to the production of a good or service (e.g. overhead)
- Cost drivers: factors that influence the cost of production (e.g. volume, complexity)
- Cost accounting methods:
- Job costing: assigns costs to specific jobs or projects
- Process costing: assigns costs to specific processes or departments
- Activity-based costing: assigns costs to specific activities or tasks
Auditing
- Provides assurance that financial statements are accurate and reliable
- Types of audits:
- Financial statement audit: examines the financial statements and underlying records
- Operational audit: examines the organization's operations and internal controls
- Compliance audit: examines the organization's compliance with laws and regulations
- Audit process:
- Planning: determine the scope and objectives of the audit
- Fieldwork: gather evidence and perform procedures
- Reporting: issue an audit report with findings and recommendations
Budgeting
- Plans and manages an organization's financial resources
- Key concepts:
- Budget: a financial plan that outlines projected income and expenses
- Forecasting: predicting future financial outcomes
- Variance analysis: analyzing the difference between actual and budgeted results
- Budgeting methods:
- Incremental budgeting: based on previous year's budget with adjustments
- Zero-based budgeting: starts from a "zero balance" and justifies every expense
- Activity-based budgeting: allocates costs to specific activities or tasks
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Description
Learn about the purpose and key elements of financial reporting, including balance sheets, income statements, and cash flow statements. Understand the different financial reporting frameworks used to provide stakeholders with financial information about an organization.
