GAAP and Accounting Standards

What is SOX?

(Sarbanes-Oxley Act) It is to help curb financial abuses at companies that issue public stock.

What are the principals and assumptions that make up GAAP?

-measurement/cost principal -revenue recognition principle -expense recognition/matching principle -full disclosure principle -going-concern assumption -monetary unit assumption -time period assumption -business entity assumption

Name and describe the 2 types of accounting principals and assumptions.

1. General principles: basic assumptions, concepts, and guidelines; stem from long-used accounting practices 2. Specific principles : detailed rules; often arise from the rulings of authoritative groups.

What is GAAP and who oversees it?

Generally accepted accounting principles; rules that specify acceptable accounting practices. Overseen and reported by the Securities and Exchange Commission (SEC); standards set by the Financial Accounting Standards Board (FASB).

business entity assumption

a business is accounted for separately from other business entities, including its owner

going-concern assumption

a presumption that the business will continue operating instead of being closed or sold

monetary unit assumption

express transactions in monetary units

measurement/cost principal

prescribes that accounting information is based on actual cost measured on a cash or equal-to-cash basis

time period assumption

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

revenue recognition principle

provides guidance on when a company must recognize revenue: 1. Revenue is recognized when earned (eg. when services are performed) 2. Proceeds from selling products and services do not need to be in cash ("on credit") 3. Revenue is measured by the cash received plus the cash value of any other items received

expense recognition/matching

record the expenses incurred to generate the revenue reported

full disclosure principle

report the details that would impact users' decisions