Chapter 1

Statement of Financial Position

Same as balance sheet.

Bookkeeping

The clerical dimension of accounting that includes recording the routine transactions and day-to-day record keeping of an enterprise.

Management Accounting

The design and use of accounting information systems inside the firm to achieve the firm's objectives

Balance Sheet

The financial statement showing the financial position of an enterprise by summarizing its assets, liabilities, and owners' equity at a point in time. Also called the statement of financial position.

Control Environment

The foundation for all the other elements of internal control, setting the overall tone for the organization

Information and Communication

The organization's process for capturing operational, financial, and compliance-related information necessary to run the business, and communicating that information downstream (from management to employees), upstream (from employees to management), and across the organization.

Return On Investment

The payment of an amount (interest, dividends) for using another's money.

Accounting System

The personnel, procedures, devices, and records used by an organization to develop accounting information and communicate that information to decision makers

Monitoring Activities

The process of evaluating the effectiveness of an organization's system of internal control over time, including both ongoing management and supervisory activities and periodic separate evaluations.

Integrity

The qualities of being complete, unbroken, unimpaired, sound, honest, and sincere.

Return of Your Investment

The repayment to an investor of the amount originally invested in another enterprise.

Basic Functions of an Accounting System

1. Interpret and record the effects of business transactions 2. Classify the effects of similar transactions in a manner that permits determination of the various totals and subtotals useful to management and used in accounting reports 3. Summarize and communicate the information contained in the system to decision makers

Cash Flow Prospects

: The likelihood that an enterprise will be able to provide an investor with both a return on the investor's investment and the return of that investment.

Income Statement

A financial statement summarizing the results of operations of a business by matching its revenue and related expenses for a particular accounting period. Shows the net income or net loss.

Internal Revenue Service

A government organization that handles millions of income tax returns filed by individuals and businesses and performs audit functions to verify the data contained in those returns

Securities and Exchange Commission

A governmental organization that has the legal power to establish accounting principles and financial reporting requirements for publicly held companies in the United States.

Sarbanes Oxley Act

A landmark piece of securities law, designed to improve the effectiveness of corporate financial reporting through enhanced accountability of auditors, audit committees, and management.

Financial Accounting Standards Board

A private-sector organization that is responsible for determining generally accepted accounting principles in the United States.

Internal Control

A process designed to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner

Risk Assessment

A process of identifying, analyzing, and managing those risks that pose a threat to the achievement of the organization's objectives

American Accounting Association

A professional accounting organization consisting primarily of accounting educators that is dedicated to improving accounting education, research, and practice.

American Institute of CPAs

A professional accounting organization of certified public accountants that engages in a variety of professional activities, including establishing auditing standards for private companies, conducting research, and preparing and grading the CPA exam.

Institute of Management Accountants

A professional accounting organization that intends to influence the concepts and ethical practice of management accounting and financial management.

Institute of Internal Auditors

A professional accounting organization that is dedicated to the promotion and development of the practice of internal auditing.

Certified Internal Auditor

A professional designation issued by the Institute of Internal Auditors signifying expertise in internal auditing.

Certified Management Accountant

A professional designation issued by the Institute of Management Accountants signifying expertise in management accounting.

Public Company Accounting Oversight Board (PCAOB)

A quasi-governmental body charged with oversight of the public accounting profession. The PCAOB sets auditing standards for audits of publicly traded companies.

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

A voluntary private-sector organization dedicated to improving the quality of financial reporting through enterprise risk management, effective internal control, and fraud deterrence.

International Accounting Standards Board

Charged with the responsibility of creating and promulgating international standards.

Corporate Governance

Includes the corporate structures and processes for overseeing a company's affairs, for example, the board of directors and the company's internal control processes.

External Users

Individuals and other enterprises that have a financial interest in the reporting enterprise but that are not involved in the day-to-day operations of that enterprise (e.g., owners, creditors, labor unions, suppliers, customers).

Internal Users

Individuals who use accounting information from within an organization (for example, board of directors, chief financial officer, plant managers, store managers).

General Purpose Information

Information that is intended to meet the needs of multiple users that have an interest in the financial activities of an enterprise rather than tailored to the specific information needs of one user.

Control Activities

Policies and procedures that management puts in place to address the risks identified during the risk assessment process

Generally Accepted Accounting Principles (GAAP)

Principles that provide the framework for determining what information is to be included in financial statements and how that information is to be presented.

Financial Accounting

Providing information about the financial resources, obligations, and activities of an economic entity that is intended for use primarily by external decision makers- investors and creditors

Financial Statement

A declaration of information believed to be true and communicated in monetary terms.

Government Accountability Office

A federal government agency that audits many other agencies of the federal government and other organizations that do business with the federal government and reports its findings to Congress.

Certified Public Accountant

An accountant who is licensed by a state after meeting rigorous education, experience, and examination requirements.

Statement of Cash Flows

An activity statement that explains the enterprise's change in cash in terms of its operating, investing, and financing activities.

Audit

An investigation of financial statements designed to determine their fairness in relation to generally accepted accounting principles.