Financial accounting: What Is Financial Accounting and Why Is It Important? University of Nevada, Reno

Financial accounting

Fund that limits its investments to a particular sector of the marketplace. Charge made by a local government for the cost of an improvement or service. BOND INTEREST payment covering less than the conventional six-month period. The number of shares in a COMPANY that have been issued and remain in circulation.

A business that is treated as distinct from its creditors, customers, and owners. U.S. government BOND issued in face value denominations ranging from $50 to $10,000. Concept in statutes and regulations whereby a person who meets listed requirements will be preserved from adverse legal action. Frequently, safe harbors are used where a legal requirement is somewhat ambiguous and carries a risk of punishment for an unintended violation.

Tangible property held for sale, or materials used in a production process to make a product. Method that determines the discount rate at which the present value of the future CASH FLOWS will exactly equal investment outlay. Labor costs for production-related activities that cannot be connected with or conveniently and economically traced to a specific end product. Any cost that cannot be conveniently and economically traced to a specific department; a manufacturing cost that is not easily traced to a specific product and must be assigned using an allocation method. This is the private sector standard-setting body governing the independence of AUDITORs from their public company clients. It came about from discussions between the AICPA, other accounting representatives and the SEC.

  • The income statement reports a company’s profitability during a specified period of time.
  • Collective term for written promissory notes that are due in less than one year and are held by the entity to whom payment is promised.
  • The study of the ways goods and services are produced, transported, sold, and used.
  • Member of a stock exchange who maintains a fair and orderly MARKET in one or more securities.
  • In that case, furthering your understanding of financial terms and metrics can help you become more effective.

Right to buy or sell something at a specified price during a specified time period. Highest price or rate of return an alternative course of action would provide. MUTUAL FUND that does not have a fixed number of shares outstanding, offers new shares to the public, and buys back outstanding shares at market value. Price per share at which a new or secondary distribution of securities is offered for sale to the public. Value assigned to ASSETS or LIABILITIES that is not based on cost or market (e.g., the value of a service not yet rendered).

INTEREST cost incurred during the time necessary to bring an ASSET to the condition and location for its intended use and included as part of the HISTORICAL COST of acquiring the asset. Outlay of money to acquire or improve capital assets such as buildings and machinery. Standard rate multiplied by a level of activity to determine the OVERHEAD cost of that activity. One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated under federal securities laws or state BLUE SKY LAWS.

This sets out the period within which actions may be brought upon claims or within which rights may be enforced. As it pertains to tax returns, the statute of limitations is generally three years from the date a return is due or filed. Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation as of a specified date, the entity’s ASSETS, LIABILITIES and the EQUITY of its owners.

Financial accounting is a specialized branch of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet. On the other hand, International Financial Reporting Standards (IFRS) is a set of accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board (IASB).[2] With IFRS becoming more widespread on the international scene, consistency in financial reporting has become more prevalent between global organizations. Public companies are required to perform financial accounting as part of the preparation of its financial statement reporting.

Control Risk

Items that are not accounted for (unless someone is prepared to pay something for them) include things like workforce skill, morale, market leadership, brand recognition, quality of management etc. The theory of accounting has, therefore, developed the concept of a “true and fair view”. The true and fair view is applied in ensuring and assessing whether accounts do indeed portray accurately the business’ activities.

When liabilities and equity are added together, they must balance out assets — hence the term balance sheet. The most basic kind of financial statement is a balance sheet, also known as a statement of financial position or a statement of net worth. The income statement reports a company’s profitability during a specified period of time.

The regulatory bodies have stated some basic principles to standardize the process. In the US, companies follow the guidelines of GAAPGAAPGAAP (Generally Accepted Accounting Principles) are standardized guidelines for accounting and financial more. The primary purpose of financial accounting is to paint a clear picture of a company’s operational performance over a specified period of time, as well as summarize its assets, liabilities and equity at a point in time. To compile this information, an accountant files financial records under categories and uses them to construct several kinds of financial statements.

Research is a planned activity aimed at discovery of new knowledge with the hope of developing new or improved products and services. Development is the translation of research findings into a plan or design of new or improved products and services. Written authorization to a vendor to deliver specified goods or services at a stipulated price.

Modified Accelerated Cost Recovery System

The transferee is only liable to the extent of the value of the property received from the transferor. Thus, transferee liability merely provides a means for the IRS to recover any assets the transferor-taxpayer attempts to transfer to avoid paying taxes. Any individual or other taxable entity that is required to file a return, statement or any other document with the IRSmust indicate his (or its) taxpayer identification number.

Something that can be sold or transferred to another party in exchange for money or as settlement of an obligation. Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants and regulate the practice of public accountancy in the United States. Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants and regulate the practice of public accountancy in the United States.

Financial accounting

DEBT SECURITIES issued by companies with higher than normal credit risk. Considered “non-investment grade” bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk. The sum of beginning inventory and the net cost of purchases during a period; the total goods available for sale to customers during an accounting period.

Claim against a DEBTOR for an uncollected amount, generally from a completed transaction of sales or services rendered. Formal record that represents, in words, money or other unit of measurement, certain resources, claims to such resources, transactions or other events that result in changes to those resources and claims. If a reasonable person could not reach such a conclusion regarding a particular misstatement, that misstatement is more than inconsequential. The social work education programs provided by the University of Nevada, Reno School of Social Work are accredited at the baccalaureate and master’s levels by the Council on Social Work Education (CSWE). This indicates to the public and to potential employers that graduates meet the high professional standards established by CSWE in its Educational Policy and Accreditation Standards (EPAS).

Installment Method

BOND with a long-term, high-premium, COMMON STOCK conversion feature and also offering a fairly competitive interest rate. Legal arrangement involving a promise by one person to perform the obligations of a second person to a third person, in the event the second person fails to perform. The beginning point for the determination of income, including income from whatever sources derived.

Financial accounting

Takeover of a private company’s assets or operations by a government. An accounting model that is based on the economic theory that profit will be greater when the difference between total revenue and TOTAL COST is the greatest. A significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A DEBT that falls due more than one year in the future or beyond the normal OPERATING CYCLE, or that is to be paid out of noncurrent assets. ACCOUNTING method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense.

Generally, the basis of property acquired by INHERITENCE, BEQUEST or device from a DECENDANT is the FAIR MARKET VALUE of the property on the date of the decendant’s death. Thus if the fair market value is more than the decedent’s basis, a taxpayers basis in the property received is stepped-up. Grouping of expenses reported on a company’s PROFIT and LOSS statement between COST OF GOODS SOLDand INCOME deductions. Business or other transaction between persons who do not have an arm’s-length relationship (e.g., a relationship with independent, competing interests). For tax purposes, these types of transactions are generally subject to a greater level of scrutiny. A put is an option to sell a certain number of shares of stock at a stated price within a certain period.

Method of valuing ASSETS that results in adjustment of an asset’s carrying amount to its market value. Increase or decrease in the TOTAL COSTS of a business firm as the result of one more or one less unit of output. Reporting designed to assist management in decision-making, planning, and control.

Financial forecasting refers to the ways a business predicts future revenue, cash flow, and expenses. Businesses use forecasts to budget and plan for the future, as well as to offer insights to investors in financial reports. If you’re a business professional, your performance is likely evaluated based on the value you add to your organization.