ACG 2021 Chapter 1

3 Accounting Activities

1. Identifying business activities 2. Recording business activities 3. Communicating business activities

Measurement Principle

Also called cost principles, means that accounting information is based on actual cost

Matching Principle

Also called expense recognition, prescribes that a company must record its expenses incurred to generate the revenue

Internal Users

Directly involved in managing and operating an organization. Ex: Managers, officers, sales staff, budget officers

Sarbanes-Oxley Act

In response to a number of publicized accounting scandals (Enron, WorldCom, Tyco, ImClone), Congress passed the Sarbanes-Oxley Act (also called SOX) in 2002 to help curb financial abuses at companies that issue their stock to the public. The act requires that public companies apply both accounting oversight and stringent internal controls. The desired results include more transparency, accountability, and truthfulness in reporting transactions.

External Users

Not directly involved in running the organization. Ex: shareholders, lenders, customers, suppliers, lawyers, brokers

Business Entity Forms

Sole proprietorship, partnership, corporation

Generally Accepted Accounting Principles

The concepts and rules that govern financial accounting Relevant, reliable, and comparable information

Business Entity Assumption

a business is accounted for separately from its owner or other business entities

Going-concern Assumption

accounting information reflects a presumption the business will continue operating

Securities and Exchange Commission

an independent agency of the government that regulates financial markets and investment companies

Time Period Assumption

presumes that the life of a company can be divided into time periods, such as months and years.

Revenue Recognition Principle

provides guidance on when a company must recognize revenue

Full Disclosure Principle

requires a company to report the details behind financial statements that would impact users' decisions

Monetary Unit Assumption

we can express transactions in money