Chapter 1 Accounting: Information for Decision-Making

Securities and Exchange Commission (SEC)

A governmental organization that has the legal power to establish accounting principles and financial reporting requirements for publicly held companies in the United States.

Sarbanes-Oxley Act

A landmark piece of securities law, designed to improve the effectiveness of corporate financial reporting through enhanced accountability of auditors, audit committees, and management.

Financial Statement

A monetary declaration of what is believed to be true about an enterprise.

Balance Sheet

A position statement that shows where the company stands in financial terms at a specific date. (Also called the statement of financial position.)

Financial Accounting Standards Board (FASB)

A private-sector organization that is responsible for determining generally accepted accounting principals in the United States.

Public Company Accounting Oversight Board (PCAOB)

A quasi-governmental body charged with oversight of the public accounting profession. The PCAOB sets auditing standards for audits of publicly traded companies.

Statement of Financial Position

Also called the balance sheet.

Certified Public Accountant

An accountant who is licensed by a state after meeting rigorous education, experience, and examination requirements.

Income Statement

An activity statement that shows details and results of the company's profit-related activities for a period of time.

Statement of Cash Flows

An activity statement that shows the details of the company's activities involving cash during a period of time.

Audit

An investigation of financial statements designed to determine their fairness in relation to generally accepted accounting principles.

External Users

Individuals and other enterprises that have a financial interest in the reporting enterprise but that are not involved in the day-to-day operations of that enterprise (e.g., owners, creditors, labor unions, suppliers, customers).

Internal Users

Individuals who use accounting information from within an organization (for example, board of directors, chief financial officer, plant managers, store managers).

Generally Accepted Accounting Principles (GAAP)

Principles that provide the framework for determining what information is to be included in financial statements and how that information is to be presented.

Financial Accounting

Providing information about the financial resources, obligations, and activities of an economic entity that is intended for use primarily by external decision makers--investors and creditors.

Management Accounting

Providing information that is intended primarily for use by internal management in decision making required to run the business.

Bookkeeping

The clerical dimension of accounting that includes recording the routine transactions and day-to-day record keeping of an enterprise.

Return On Investment

The payment of an amount (interest, dividends) for using another's money.

Accounting System

The personnel, procedures, devices, and records used by an organization to develop accounting information and communicate that information to decision makers.

Integrity

The qualities of being complete, unbroken, unimpaired, sound, honest, and sincere.

Return of Investment

The repayment to an investor of the amount originally invested in another enterprise.