1. Identify the accounting bodies tasked to promulgate accounting standards.

-The Generally Accepted Accounting Principles (GAAP)-is the primary accounting standard
adopted by the U.S. Securities and Exchange Commission (SEC). GAAPs were designated in the
United States and form the basis of accepted accounting standards for preparing and reporting
financial statements across the world.

a. The International Accounting Standards Board (IASB)-provides rule-based and

principle-based accounting guidelines for international companies that are based
outside the U.S.

b. The International Accounting Standards (IAS)-are intended to achieve the uniformity

of approach and identity of meaning. Accounting standards of a specific country are
strongly influenced by its governance arrangement and tax policy.

c. The International Financial Reporting Standards (IFRS)-specifies how international

companies should manage and report their financial statements and define different
types of transactions with financial implications. It is a principle-based accounting
standard whose foundations set the ground for investors and businesses to analyze
financial records and make a decision.

2. What is the value of setting standards in accounting?

-Accounting is sometimes referred to as the "language of business" since it communicates the

company's financial condition to others. And, just as every language has its own set of syntax and
grammar rules, so does this one. In the case of accounting, these regulations are known as
Accounting Standards (AS). They are a country's framework of accounting and reporting rules
and regulations. Accounting Standards (AS) are fundamental policy standards that help
businesses generate and publish usable financial accounts in a timely and correct manner. Their
main aim is to ensure transparency, reliability, consistency, and comparability of the financial
statements. They accomplish it by standardizing a country's/accounting economy's policies and
concepts.

3. Name the three basic financial statements. Explain the importance of the qualitative
characteristics of financial statements.

-The objective of financial statements is to provide information about:

a. Financial Position the statement of financial position also called balance sheet shows
the assets, liabilities, and owner's equity of a business at a specified date.
b. Operating Performance the statement of income, also called profit and loss
statement shows the net income or net loss for a period of time.
c. Cash Flows the statement of cash flows shows the source of cash and the uses of
cash for a period of time.

-The qualitative characteristics of accounting information are important because

they make it easier for both company management and investors to utilize a company’s
financial statements to make well-informed decisions.
4. Explain the constraints on relevant and reliable information.

-The major constraints on relevant and reliable financial statements are:

Timeliness: If there is undue delay, information becomes irrelevant.

Balance between cost and benefit: The benefits derived from information should exceed the
cost of providing it.

Balance between the various qualitative characteristics: In practice, it has become necessary
to achieve an appropriate balance between the qualitative characteristics.

Fair presentation: The financial statements must "present fairly" the financial position,
financial performance and cash flows of an entity.

5. Compare assets, liabilities and owner’s equity. Name two account titles under each group.

 Assets (how much the business owns)

- valuable resources owned by the entity

- Account Titles: Cash, Accounts Receivable

 Liabilities (how much the business owes)

-obligations of an entity to outside parties

-Account Titles: Accounts Payable, Notes Payable

 Owner’s Equity

-the residual interest of the entity

-Account Titles: Capital, Withdrawal

6. In a trading business, compare cost cost of sales and expenses.

-The term "cost of goods sold" refers to expenses directly associated to the creation of a
product, such as materials used to build it and transportation costs to get items from a
distributor to a retailer. While, operating expenses refer to expenditures that are not directly
tied to the production of goods or services, such as rent, utilities, office supplies, and legal
costs.