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Exam 1 ACC 3300
Chapters 1,2 and 3
| Question | Answer |
|---|---|
| Stable dollar assumption | Monetary Unit Assumption |
| Earning process completed and realized/realizable | Revenue recognition principle |
| Numbers and descriptions match what really existed or happened | Faithful representation characteristics |
| Yearly financial reports | Periodicity assumption |
| Accruals and deferrals in adjusting and closing process | Expense recognition principle |
| Useful standard measuring unit for business transactions | Monetary unit assumption |
| Notes as part of necessary information to a fair presentation | Full disclosure principle |
| Affairs of the business distinguished from those of its owners | Economic entity assumption |
| Company assumed to have a long life | Going concern assumption |
| Valuing assets at amounts originally paid for them | Historical cost principle |
| Application of the same accounting principles as in the preceding year | Consistency characteristic |
| Summarizing significant accounting policies | Full disclosure principle |
| Presentation of timely information with predictive and feedback value | Relevance characteristic |
| What are the 2 committees that established accounting principles prior to the establishment of the FASB? | Committee on Accounting Procedures (CAP) & the Accounting Principles Board (APB). |
| CAP-Committee on Accounting Procedures | 1939-1959; issued 51 Accounting Research Bulletins (ARB); composed of practicing CPAs. |
| APB-Accounting Procedures Board | 1959; replaced the CAP; released 31 official pronouncements called APB Opinions; consisted of 18-21 volunteers. |
| Why did CAP fail? | CAP's problem-by-problem approach failed to provide the well-defined, structured body of accounting principles that was needed/desired. |
| Why did APB fail? | lacked productivity; their job was to "better" accounting practice. |
| FASB-Financial Accounting Standards Board | establishes/improves standards of financial accounting & reporting for the benefit of the public; 7 members (not required to be CPAs); members work full-time/paid well; answers only to FAF. |
| AICPA's role? | AcSEC identifies current financial reporting problems & presents treatments; this gives FASB an early warning, and allows it to issue FASB standards, interpretations & staff positions. |
| Why would the AcSEC issue a Statement of Position? | to provide guidance for the reporting issue. |
| Why would the AcSEC issue Practice Bulletins? | b/c they indicate how the AICPA believes a given transaction should be reported. |
| Agreement b/w the FASB and the AICPA? | The AICPA and AcSEC no longer will issue authoritative accounting guidance for public companies. |
| AICPA | American Institute of CPAs |
| CAP | Committee on Accounting Principles |
| ARB | Accounting Research Bulletins (issued by CAP) |
| APB | Accounting Principles Board |
| FAF | Financial Accounting Foundation |
| FASAC | Financial Accounting Standards Advisory Council |
| SOP | Statement of Position |
| GAAP | Generally Accepted Accounting Principles |
| CPA | Ceritifed Public Accountants |
| FASB | Financial Accounting Standards Board |
| SEC | Securities & Exchanges Commission |
| IASB | International Accounting Standards Board |
| ASEC issues: | Practice Bulletins; Statement of Positions |
| APB issues: | Opinions |
| CAP issues: | Accounting Research Bulletins |
| FASB issues: | Financial Accounting Standards |
| Staff Positions | provides additional guidance on implementing or applying FASB Standards or Interpretations. |
| Interpretations (of the FASB) | represent extensions or modifications of existing standards. |
| Statement of Financial Accounting Standards | primary document of the FASB that establishes GAAP. |
| EITF Statements | provides guidance on how to account for new and unusual financial transactions that have the potential for creating diversity in financial reporting practices. |
| Opinions | official pronouncements of the APB. |
| Statement of Financial Accounting Concepts | Sets forth fundamental objectives and concepts that will be used in developing future standards. |
| Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements: | true |
| Qualitative characteristics being employed when companies in the same industry are using the same accounting principles | comparability |
| quality of information that confirms users' earlier expectations | confirmatory value |
| imperative for providing comparisons of a company from period to period | comparability (consistency) |
| ignores the economic consequences of a standard or rule | neutrality |
| requires a high degree of consensus among individuals on a given measurement | verifiability |
| predictive value is an ingredient of this fundamental quality of information | relevance |
| four qualitative characteristics that are related to both relevance and faithful representation | comparability; verifiability; timeliness; understandability |
| an item is not recorded because its effect on income would not change a decision | materiality |
| neutrality is an ingredient of this fundamental quality of accounting information | faithful representation |
| 2 fundamental qualities that make accounting information useful for decision-making purposes | relevance; faithful representation |
| issuance of interim reports is an example of what fundamental ingredient of relevance? | timeliness |
| Conceptual Framework - First level (bottom) | OBJECTIVE OF FINANCIAL REPORTING --- the "why", purpose of accounting. |
| Conceptual Framework - Middle level | QUALITATIVE CHARACTERISTICS --- what makes acct. useful & ELEMENTS OF FINANCIAL STATEMENTS --- assets, liabilities,etc. |
| Conceptual Framework - Third level (top) | RECOGNITION, MEASUREMENT & DISCLOSURE --- "how" implementation; includes assumptions, principles & constraints. |
| decision-usefulness | determines which alternative provides the MOST useful info for decision-making purposes. |
| Qualitative Characteristics - Fundamental: RELEVANCE | Relevance (capable of making a difference in decision); relevant if there is PREDICTIVE VALUE, CONFIRMATORY VALUE, or MATERIALITY. |
| Qualitative Characteristics - Fundamental: FAITHFUL REPRESENTATION | info. must be COMPLETE, NEUTRAL, and FREE FROM ERROR. |
| Qualitative Charactertistics - Enhancing Qualities | comparability, verifiability, timeliness, and understandability. |
| 4 Basic Assumptions: ECONOMIC ENTITY | A co. keeps its activities separate & distinct from its owners. |
| 4 Basic Assumptions: GOING CONCERN | That the co. will be in existence for a long time. |
| 4 Basic Assumptions: MONETARY UNIT | money is the common denominator of economic activity. |
| 4 Basic Assumptions: PERIODICITY (time period) | implies that a co. can divide its economic activities into artificial time periods. |
Created by:
kserrano005
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