Ch. 1 - A Framework for Financial Accounting - Learning Objectives
LO1-6 Identify carer opportunities in accounting.
Because of the high demand for accounting graduates, the wide range of job opportunities, and increasing salaries, this is a great time to obtain a degree accounting.
LO1-2 Understand the business activities that financial accounting measures.
The measurement role of accounting is to create a record of the activities of a company. To make this possible, a company must maintain an accurate record of its assets, liabilities, stockholders' equity, revenues, expenses, and dividends.
LO1-5 Explain the term generally accepted accounting principles (GAAP) and describe the role of GAAP in financial accounting.
The rules of financial accounting are called generally accepted accounting principles (GAAP). The Financial Accounting Standards Board (FASB) is an independent, private body that has primary responsibility for the establishment of GAAP in the United States. The primary objective of financial accounting is to provide useful information to investors and creditors in making decisions.
LO1-4 Describe the role that financial accounting plays in the decision-making process.
Financial accounting serves an important role by providing information useful in investment and lending decisions. No single piece of company information better explains companies' stock price performance than does financial accounting net income. A company's debt level is an important indicator of management's ability to respond to business situations and the possibility of bankruptcy.
LO1-7 Explain the nature of the conceptual framework used to develop generally accepted accounting principles
The conceptual framework provides an underlying foundation for the development of accounting standards and interpretation of accounting information. To be useful for decision making, accounting information should have relevance and faithful representation.
LO1-1 Describe the two primary functions of financial accounting.
The functions of financial accounting are to measure business activities of a company and to communicate information about those activities to investors and creditors and other outside users for decision-making purposes.
LO1-3 Determine how financial accounting information is communicated through financial statements.
The income statement compares revenues and expenses for the current period to assess the company's ability to earn a profit from running its operations. The statement of stockholders' equity reports information related to changes in common stock and retained earnings each period. The change in retained earnings equals net income less dividends for the period. The balance sheet demonstrates that the company's resources (assets) equal creditors' claims (liabilities) plus owners' claims (stockholder's equity) to those resources on a particular date. The statement of cash flows reports cash transactions from operating, investing, and financing activities for the period. All transactions that affect revenues or expenses reported in the income statement ultimately affect the balance sheet through the balance in retained earnings.