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AC 391 Ch 1-4
| Term | Definition |
|---|---|
| generally accepted accounting principles | GAAP |
| research, discussion paper, exposure draft, standard | process used in establishing accounting standards by accounting standard-setters |
| any accounting guidance included in FASB Codification | GAAP is comprised of |
| it is used when there is no standard or interpretation related to the reporting issues under consideration | the authoritative status of the conceptual framework is as follows |
| reporting to capital providers | the objective of financial reporting places most emphasis on |
| external users, particularly equity investors and creditors | general-purpose financial statements are prepared primarily for |
| accounting standards can have detrimental impacts on the wealth levels of the providers of financial information | economic consequences of accounting standard-setting means |
| expectation gap | what the public thinks accountants should do and what accountants think they can do |
| comparability | quality of information that permits users to identify similarities in and differences between two sets of economic phenomena |
| timeliness | having information available to users before it loses its capacity to influence decisions |
| predictive value | information about an economic phenomenon that has value as an input to the processes used by capital |
| relevance | information that is capable of making a difference in the decisions of users in their capacity as capital providers |
| neutrality | absence of bias intended to attain a predetermined result or to induce a particular behavior |
| faithful representation | quality of information that assures users that information represents the economic phenomena that it purports to represent |
| confirmatory value | information about an economic phenomenon that corrects past or present expectations based on previous evaluations |
| free from error | the extent to which information is accurate in representing the economic substance of a transaction |
| completeness | includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent |
| understandability | quality of information that allows users to comprehend its meaning |
| income statement | interest revenue |
| balance sheet | cash |
| income statement | sales revenue |
| balance sheet | accounts receivable |
| income statement | sales returns and allowances |
| balance sheet | prepaid insurance |
| balance sheet | allowance for doubtful accounts |
| income statement | sales discounts |
| balance sheet | land, equipment, and buildings |
| income statement | cost of goods sold |
| balance sheet | accumulated depreciation |
| balance sheet | notes receivable |
| income statement | selling expenses |
| balance sheet | accounts payable |
| balance sheet | bonds payable |
| income statement | administrative and general expenses |
| balance sheet | accrued liabilities |
| income statement | interest expense |
| balance sheet | notes payable |
| income statement | loss from earthquake damage |
| balance sheet | common stock |
| balance sheet | retained earnings |
| the identification, measurement, and communication of financial information about economic entities to interested parties | essential characteristics of accounting |
| To provide disclosure required by generally accepted accounting principles | What is the purpose of information presented in notes to the financial statements? |
| promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securities | An effective process of capital allocation is critical to a healthy economy, which |
| entity perspective | Companies viewed as separate and distinct from their owners. |
| decision-usefulness | ability to generate net cash inflows and management’s ability to protect and enhance the capital providers’ investments |
| Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note Disclosure | list of financial statements |
| Securities and Exchange Commission (SEC). American Institute of Certified Public Accountants (AICPA). Financial Accounting Standards Board (FASB). | parties involved in standard-setting |
| topics are identified and placed on the board’s agenda. | The first step taken in the establishment of a typical FASB statement is |
| to provide in one place all the authoritative literature related to a particular topic | The FASB’s primary goal in developing the Codification is |
| financial reporting challenges | Nonfinancial measurements. Forward-looking information. Soft assets. Timeliness. Understandability. |
| IASB and IOSCO. | The major key players on the international side are the: |
| International Financial Reporting Standards, International Accounting Standards, and international accounting interpretations. | IFRS is comprised of: |
| The IASB structure is quite similar to the FASB’s, except the IASB has a larger number of board members. | Which of the following statements is true? |
| International Financial Reporting Standards. | IFRS stands for: |
| To develop a coherent set of standards and rules. To solve new and emerging practical problems | need for conceptual framework |
| true | true or false? A conceptual framework underlying financial accounting is important because it can lead to consistent standards and it prescribes the nature, function, and limits of financial accounting and financial statements. |
| false | true or false? A conceptual framework underlying financial accounting is necessary because future accounting practice problems can be solved by reference to the conceptual framework and a formal standard-setting body will not be necessary. |
| Basic Objectives Second Level = Qualitative Characteristics and Elements Third Level = Recognition, Measurement, and Disclosure Concepts. | First Level of conceptual framework |
| Qualitative Characteristics and Elements | Second Level of conceptual framework |
| Recognition, Measurement, and Disclosure Concepts. | Third Level of conceptual framework |
| The objectives and concepts for use in developing standards of financial accounting and reporting. | What are the Statements of Financial Accounting Concepts intended to establish? |
| The needs of the users of the information. | According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on? |
| material | Information is ________ if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information. |
| Assets Liabilities Equity | moment in time |
| Investment by owners Distribution to owners Comprehensive income Revenue Expenses Gains Losses | period of time |
| A decrease in a liability from primary operations. | According to the FASB conceptual framework, an entity’s revenue may result from |
| Economic Entity | company keeps its activity separate from its owners and other businesses |
| Going Concern | company to last long enough to fulfill objectives and commitments |
| Monetary Unit | money is the common denominator |
| Periodicity | company can divide its economic activities into time periods |
| Historical cost | provides a reliable benchmark for measuring historical trends |
| Fair value | information may be more useful than historical cost |
| Revenue Recognition | requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied |
| Expense Recognition | “Let the expense follow the revenues.” |
| Full Disclosure | providing information that is of sufficient importance to influence the judgment and decisions of an informed user |
| Cost Constraint | cost of providing information must be weighed against the benefits that can be derived from using it. |
| IFRS does not allow use of fair value as a measurement basis. | Which of the following statements about the IASB and FASB conceptual frameworks is not correct? |
| Under IFRS, there are the same number of financial statement elements as in GAAP. | Which of the following statements is false? |
| Should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making? | The issues that the FASB and IASB must address in developing a common conceptual framework include all of the following except: |
| accounting information systems | Collects and processes transaction data. Disseminates the financial information to interested parties. |
| account | shows the effect of transactions on a given asset, liability, equity, revenue, or expense account |
| External events | between an entity and its environment. |
| Internal events | event occurring entirely within an entity. |
| General Journal | a chronological record of transactions. Journal Entries are recorded in the journal. |
| Posting | Transferring amounts from journal to ledger. |
| to identify the type of account involved, and to determine whether a debit or a credit is required | purpose of transaction analysis |
| Trial Balance | A list of each account and its balance; used to prove equality of debit and credit balances. |
| Revenues | are recorded in the period in which services are performed |
| Expenses | are recognized in the period in which they are incurred |
| unearned revenues. | Receipt of cash before the services are performed is recorded as a liability called |
| accrued revenues. | Revenues recorded for services performed but cash has yet to be received at the statement date are |
| accrual-based accounting | recognize revenue when the performance obligation is satisfied and expenses in the period incurred, without regard to the time of receipt or payment of cash. |
| cash-based accounting | record revenue only when they receive cash, and record expenses only when they disperse cash. |
| have a cost that does not exceed the benefits. be transparent. provide a suitable starting point. | Information in a company’s first IFRS statements must: |
| None of the above. | The transition date is the date: |
| recast previously issued financial statements in accordance with IFRS. | When converting to IFRS, a company must: |
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