1. Prepare 2. Analyze 3. Gather 4. Make decisions 5. Implement 6. Observe. Accounting steps. Inside, Internal Managerial info is inside or outside the business? True. Financial accounting is only outside. Managerial accounting can be inside AND outside. True or false, managerial accounting uses BOTH managerial and financial accounting? Outside, External, includes lenders and investors Financial is inside or outside the business? Balance sheet, income statement, and statement of cash flows The financial statement includes what 3 documents Balance Sheet Point in time, Assets (resources) and liabilities (obligations) Income Statement Period of time (usually 1 year), amount of profit made Statement of Cash flows Period of time, where money came from, and where it went. Inflow and outflow of cash (Cash Flows). Change in money for the period. Balance sheet equation Assets= liabilities + equity Revenue equation Net income=Revenue - Expenses Operating, investing, and financial activities The statement of cash flows includes what three activities FASB: Financial accounting standards. Private, no government involvement. It is a public process, includes individuals experienced in business and accounting (7 members). The decision makers in the U.S. (accounting rules) 00:0201:28 GAAP: General accepted accounting principles Developed by accounting rule makers. No Legal authority. comparability We need accounting rules for... SEC: Security and exchange commission. Located in Article 1, Sec 8, Clause 3 U.S. gov agency responsible for ensuring that investors, creditors, and other financial statement users are provided with reliable information. It watches behavior in financial markets. Registration statements (prospectus), Form 10-K, Form 10-Q, and schedule 14A (proxy statement). These are all publicly viewable. What forms do the SEC regulate? Oversees stock exchanges, can suspend a company, investigate and suspect violations of the SEC rules. What does the SEC do? YES. The SEC has legal authority to establish accounting rules and disclosure requirements. Does the SEC have legal authority? USA congress->SEC->FASB Financial accounting rule per the US constitution FASB: Financial accounting standards board The SEC created the GAAP (has no legal authority) FASB created AIPCA: American INSTITUTE of certified public accountants. What sets auditory standards, continue education credits, CPA exam, and is the code of professional conduct? Only CPA's: Certified public accountants. Who is the only person who can sign audit reports? PCAOB: Public company accounting oversight board. The Sarbanes-Oxley Act "SOX" created? Under supervision of the SEC. PCAOB is under supervision of? PCAOB: Public Company Accounting OVERSIGHT Board. Who appoints members, approves actions, gov standards, inspections, and investigations? It is a private group and OVERSEES. AUDITORS? U.S. Gov agency that collects and regulates income taxes. Their primary goal is to collect revenue. IRS Economic income and accounting income books. & Tax income, and cash flow books. There are two sets of books. Tax Books and Financial accounting books. Similar to the FASB, but not 100% the same. It is international, everywhere but the U.S. IASB: Internatonal Accounting Standard Board Who enforces and national policies. Barriers to international convergence are? Condorsement Rules set centrally, but legally adopted and enforced locally? The SEC, SOX, and PCAOB. To increase government regulation, one would use: Reduce uncertainty and allows lenders and investors to target their financing and investing to the level of risk they are willing to take. Financial statements Adudit A financial statement that furthermore decreases uncertainty. Income Statement Provides accountants the best attempt at measuring the economic performance of a company. Balance sheet Mother of all financial statements. Accounting equation