Financial Accounting Study Guide PDF

Balance Sheet includes assets, liabilities, and owner’s equity. It is a snapshot of a company at a point in time Income Statement includes revenues and expenses during an accounting period Statement of Cash flows tracks cash movements across three activities. This statement tracks flow of cash flo...

Balance Sheet includes assets, liabilities, and owner’s equity. It is a snapshot of a company at a point in time Income Statement includes revenues and expenses during an accounting period Statement of Cash flows tracks cash movements across three activities. This statement tracks flow of cash flows into and out of a company during a specific time period ​ Operating ○​ cash flows directly related to earning income, such as cash collected from customers less cash paid for operating expenses, such as cash paid to suppliers and employees ​ Investing ○​ Cash flows related to acquisition or sale of the company’s plant and equipment and investments ​ Financing ○​ Cash flows directly to the financing enterprise, such as the receipt or payment of money to investors and creditors (except suppliers) Know where to record something ​ Ex. Insurance expenses would be on the income statement because it is an expense Independent Auditors are responsible for the auditors’ report which reviews a company’s financial statements to ensure accuracy, compliance, and reliability ​ Managers are responsible for preparing accurate and truthful reports ​ CFO and CEO must certify financial statements Sarbanes-Oxley Act Enacted ​ Set of reforms that toughened penalties for corporate fraud ​ Restricted the types of consulting CPAs may perform for public company audit clients ​ This act made the CFO and the CEOs sign and certify financial statements Legal Company Structures ​ Sole Proprietorship ○​ Easy to set up, unlimited liability, taxed once ​ Partnership ○​ Easy to set up, unlimited liability for general partners, taxed once ​ Corporations ○​ Limited liability, double taxation Tax formula Taxable Income × Tax Rate = Tax Tax Rate types ​ Progressive- imposes an increasing marginal tax rate as the tax base increases (income) ​ Proportional (flat) imposes a constant tax rate throughout the tax base (sales, Medicare) ​ Regressive- imposes a decreasing marginal tax rate as the tax base increases (social security) Know how to do basic transaction Analysis ​ Ex. A investor puts $20,000 cash into a company: ​ Debit cash and credit common stock Dividends + Expenses + Assets = Liabilities + Owner’s Equity + Revenue DEA increase when debited and decrease when credited, LER increase when credited and decrease when debited Three types of Risk ​ Business Risk- risk related to the company’s operations, such as competition, supply chain issues or economic downturns ​ Financial Risk- risk associated with a company’s financial health, including debt levels, cash flow, and profitability ​ Information Risk- the risk that financial statements contain inaccurate or misleading information either due to error or fraud SAS and SARS ​ Statement of Auditing Standards (SAS) ○​ Issued by the ASB (Auditing Standards board) ○​ Sets guidelines to external auditors on the generally accepted auditing standards ​ Statement on Standard for accounting and review services ○​ Standards for compilations or reviews, not audits of financial statements Types of Audits ​ Compliance ○​ Ensures compliance with the laws (ex IRS audit of taxpayers’ return) ​ Operational ○​ Evaluates the efficiency of operations ​ Integrated ○​ includes providing assurance of both the financial statements and effective of internal control over financial reporting ​ Financial ○​ An examination of an organization’s financial statements and record to ensure accuracy CPA requirements ​ Bachelor’s degree in accounting or related field ​ 150 credit hours ​ 1 year of working experience ​ Pass the CPA test ​ Continuing education Audits are management of risk Independence- impartiality or objectivity KNOW THIS CHART