Question

1. What is the accounting equation?

2. Who are the internal users of a company’s financial information? What kind of

decisions do they need to make using financial information?

3. What are the four major financial statements of a corporation?

4. GAAP principles and concepts

5. What are the requirements of the Sarbanes-Oxley Act?

6. What is IASB?

7. What are assets? What are prepaid expenses? Examples?

8. What is a liability? What is an unearned revenue? Examples?

9. What are the three basic elements of the balance sheet?

10. Which financial statement reveals the results of a company’s operations?

Answer 1

1	Accounting equation	The fundamental accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a person or business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. Accounting equation is [ Liability + Capital = Assets]
2	Internal users of a Company	ccounting supplies managers and owners with significant financial data that is useful for decision making. This type of accounting in generally referred to as managerial accounting. Some of the ways internal users employ accounting information include the following: Assessing how management has discharged its responsibility for protecting and managing the company’s resources Shaping decisions about when to borrow or invest company resources Shaping decisions about expansion or downsizing
3	Major financial statement	1. Balance sheet(Statement of financial position) 2. Income statement(Statement of results) 3. Cash flow statements 4. Statements of shareholders' equity.
4	GAAP principles	Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB). Public companies in the United States must follow GAAP when their accountants compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information. GAAP Concepts: 1.) Principle of Regularity The accountant has adhered to GAAP rules and regulations as a standard. 2.) Principle of Consistency Accountants commit to applying the same standards throughout the reporting process to prevent errors or discrepancies. Accountants are expected to fully disclose and explain the reasons behind any changed or updated standards in the footnotes to the financial statements. 3.) Principle of Sincerity The accountant strives to provide an accurate and impartial depiction of a company’s financial situation. 4.) Principle of Permanence of Methods The procedures used in financial reporting should be consistent. 5.) Principle of Non-Compensation Both negatives and positives should be reported with full transparency and without the expectation of debt compensation. 6.) Principle of Prudence Emphasizing fact-based financial data representation that is not clouded by speculation. 7.) Principle of Continuity While valuing assets, it should be assumed the business will continue to operate. 8.) Principle of Periodicity Entries should be distributed across the appropriate periods of time. For example, revenue should be reported in its relevant accounting period. 9.) Principle of Materiality / Good Faith Accountants must strive for full disclosure in financial reports. 10.) Principle of Utmost Good Faith Derived from the Latin phrase “uberrimae fidei” used within the insurance industry. It presupposes that parties remain honest in all transactions.
5	Requirements of SOX	THREE MANAGEMENT OF ELECTRONIC RECORDS RULES First rule: This rule concerns the destruction, alteration, or falsification of records and the resulting penalties. Second rule: A rule that defines the retention period for records storage; best practices suggest corporations securely store all business records using the same guidelines as public accountants. Third rule: This rule outlines the type of business records that need to be stored, including all business records, communications, and electronic communications. DATA PROTECTION AND COMPLIANCE Data classification enables security teams to more easily monitor and enforce corporate policies for data handling. Depending on the sensitivity of data and its applicable regulations, it may need to be encrypted, compressed, or saved to a different file format. With the correct policies in place, corporations can prevent unauthorized users, even those with administrative rights to the system, from viewing regulated data. The best solutions also prevent data egress through copying to removable storage devices. Another feature of security solutions that are worth the investment is its ability to safeguard shared data. These so-called “masking” features give users access to necessary information while ensuring compliance with regulations. COMPLIANCE AND AUDITS Being in SOX compliance and complying with other regulatory standards is nearly impossible without the correct security solutions in place. Providing evidence of compliance is even worse because evidence must prove written controls are in place, communicated, and enforced while supporting non repudiation. The correct security software solution provides the supportable evidence so that all of your compliance efforts are worthwhile.
6	IASB	The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRSs). The IASB operates under the oversight of the IFRS Foundation.
7	Assets, prepaid assets	Assets: Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles. Prepaid expense: Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired. As the amount expires, the current asset is reduced and the amount of the reduction is reported as an expense on the income statement. example: Insurance premium paid for 2 years in advance, Rent paid for 3 years in advance.
8	Liability	Liabilities are obligations of the company; they are amounts owed to creditors for a past transaction and they usually have the word "payable" in their account title. Unearned revenue: Unearned revenue is money received from a customer for work that has not yet been performed. ... Unearned revenue is a liability for the recipient of the payment, so the initial entry is a debit to the cash account and a credit to the unearned revenue account. like payment received from customer in advance for rent for entire year at the beginning of the year.
9	Basic element of Balance sheet	The balance sheet consists of three major elements: assets, liabilities and owners' equity.
10	Financial statement that reveals results	A summary of an entity's results of operation for a specified period of time is revealed in the income statement, as it provides information about revenues generated and expenses incurred. The difference between the revenues and expenses is identified as the net income or net loss.