1.2 The Building Blocks of Accounting

FASB

(Financial Accounting Standards Board) Sets the standards for Accounting in US.

IASB

(International Accounting Standards Board) Sets Accounting standards outside of the US.

IFRS

(International Financial Reportings Standards) Standards set by the IASB

SEC

(Securities and Exchange Commision) Oversees US financial markets and Standard setting bodies (I.E. FASB)

Monetary Unit Assumption

Accounting is assumed to record only transaction data that is in monetary form.

Corporation

Business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock. Shareholders are not personally liable for debts to the company.

Proprietorship

Business owned by one person. Proprietor receives any profits, suffers any losses, and is personally liable for all debts of the business.

Partnership

Business owned by two or more people associated as partners. Profits, Losses, and Liabilities work as a proprietorship but are predetermined by the partners in an initial agreement.

Weigh the Impact

Consider consequences of all parties to determine most ethical outcome.

GAAP Measuring Principles

Cost Principle Fair Value Principle

GAAP

Generally Accepted Accounting Principles) Standards in reporting economic events.

Recognize Ethical Situations

Identify ethical situations and issues in accordance with personal ethics as well as company guidelines.

Analyze Principal Elements

Identify the stakeholders and their responsibilities/obligations.

Relevance

Info that makes a difference in decision making.

Sarbanes-Oxley Act

Is to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals.

Main Assumptions

Monetary Unit Assumption Economic Entity Assumption

Faithful Representation

Numbers and descriptions that represent actual fact (Accurate and True data).

Three types of Business Ownership

Proprietorship Partnership Corporation

Analyzing Ethics

RECOGNIZE ethical situations and issues ANALYZE principal elemtns WEIGH impact of consequences for all parties.

Cost Principle

Recording Assets at original cost. (At time of purchase and over the time the asset is held)

Convergence

Reducing the differences in two standard-setting bodies (I.E. FASB and IASB).

Fair Value Principle

Reporting assets at current value. (Mostly used in Investment securities or assets that are used to cover liabilities)

Economic Entity Assumption

The assumption that the activities of an Entity (organization or business) be separate from the activities of its owner.

Ethics

The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair.