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