ACC201 C1.2: Explain the Building Blocks of Accounting: Ethics, Principles, and Assumptions

Corporation

A business organized as a separate legal entity under state corporation law and has ownership divided into transferable shares of stock

Proprietorship

A business owned by one person

Partnership

A business owned by two or more persons associates as partners

Financial Accounting Standards Board (FASB)

A private organization that establishes generally accepted accounting principles in the United States GAAP

Securities and Exchange Commission (SEC)

An American government agency that oversees U.S. financial markets and accounting standard-setting bodies; It relies the FASB to develop accounting standards, which public companies must follow

Fair Value Principle

An accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

Historical Cost Principle (Cost Principle)

An accounting principle that states that companies should record assets at their cost; the cost of the asset during the time of purchased remains the same over the time the asset is held

International Accounting Standards Board (IASB)

An accounting standard-setting body that issues standards adopted by more than 100 countries outside the United States

Sarbanes-Oxley Act (SOX)

An act passed by the US Congress to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals

Monetary Unit Assumption

An assumption stating that companies include in the accounting records only transaction data that can be expressed in money terms

Economic Entity Assumption

An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities

Economic Entity

Any organization or unit in society

Generally Accepted Accounting Principles (GAAP)

Common standards that indicate how to report economic events

Relevance

Financial information that is capable of making a difference in a decision

Faithful Representation

Means that the numbers and descriptions match what really existed or happened - they are factual

International Financial Reporting Standards (IFRS)

The international accounting standards set by the International Accounting Standards Board (IASB)

Convergence

The process of reducing the differences between U.S. GAAP and IFRS

Ethics

The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or unfair