Notes from professor Brian Bouche in Introduction to Financial Accounting

Definition:

  1. recording business transactions

Three types of accounting books (classified by readers):

  1. financial accounting → external

Financial reporting requirements (by SEC):

  1. 10-K: annual

Financial reporting requirements:

  1. Balance Sheet: financial position (listing of resources and obligations) on a specific date

Two Big Accounting Standards:

  1. GAAP:

established by U.S. Congress, but they delegate to

SEC, then they delegate to

Financial Accounting Standards Board (FASB, in Norwalk, Connecticut), they delegate to

Emerging Issue Task Force (EITF)

America’s Institute of CPA’s (AICPA)

2. International Financial Reporting Standards (IFRS):

established by the IASB (in London)and are required in over 100 countries

Fun fact:

Management is responsible for preparing financial statements:

  1. The Audit Committee of the Board of Directors provides oversight of management’s process

(The auditor for Enron is hired by Enron…….)

The SEC and other regulators take action against the firm if any violation of GAAP or other rules are found, but these regulators are usually reactive rather than proactive. They usually don’t start investigation until someone brought the problem to the public. Information intermediaries (stock analysts, institutional investors, the media) may expose or flee firms with questionable accounting.

Example of household buying a house
Example in subprime crisis

Assets are recognized when:

  1. it is acquired in a past transaction or exchange

Liabilities are recognized when:

  1. The obligation is based on benefits or services received currently or in the past

Dividends are not expense. When the board declare dividends but does not pay for it, it creates dividends payable liability where the owner of the dividends became creditors.

Three Fundamental Bookkeeping Equations:

  1. Assets = Liability + SE

Example of journal entries

My day job is a machine learning engineer, but I love working on projects in mental health, fitness and finance. I am also the author of GetUpLate.

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