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Inter ACCT 1 exam 1

chap 1

QuestionAnswer
. Financial accounting the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties.
Capital Allocation The process of determining how and at what cost money is allocated among competing interests.
entity perspective . Companies are viewed as separate and distinct from their owners (present shareholders) using this perspective.
accrual-basis accounting a company records events that change its financial statements in the periods in which the events occur
generally accepted accounting principles (GAAP) common set of standards and procedure
Securities and Exchange Commission (SEC develop and standardize financial information presented to stockholders. a federal agency. It administers the Securities Exchange Act of 1934 and several other acts. enforces laws.
the SEC relies on the FASB to develop accounting standards.
American Institute of Certified Public Accountants (AICPA the national professional organization of practicing Certified Public Accountants (CPAs), has been an important contributor to the development of GAAP.
Committee on Accounting Procedure (CAP composed of practicing CPAs, issued Research Bulletins during the years 1939 to 1959. bulletins dealt with a variety of accounting problems. But this problem-by-problem approach failed to provide the needed structured body of accounting principles.
Accounting Principles Board (APB The major purposes of the Accounting Principles Board (APB) were to (1) advance the written expression of accounting principles, (2) determine appropriate practices, and (3) narrow the areas of difference and inconsistency in practice
Financial Accounting Standards Board (FASB). . Its mission is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, which includes issuers, auditors, and users of financial information
Financial Accounting Foundation (FAF) select 7 members of FASB
Financial Accounting Standards Advisory Council (FASAC) To consult on major policy issues, technical issues, project priorities, and selection and organization of task forces.
The codification explains what GAAP is and eliminates nonessential information such as redundant document summaries, basis for conclusions sections, and historical content
Sarbanes-Oxley Act was passed in response to a string of accounting scandals at companies. This law increased the resources for the SEC to combat fraud and curb poor reporting practices
expectations gap what the public thinks accountants should do and what accountants think they can do
how accounting assists in the efficient use of scarce resources. Accounting provides reliable, relevant, and timely information to managers, investors, and creditors to allow resource allocation to the most efficient enterprises.
GAAP is the term used to indicate the whole body of FASB authoritative literature. t/f t
Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements. f
The primary governmental body that has influence over the FASB is the SEC. t
The FASB has a government mandate and therefore does not have to follow due process in issuing a standard. f
The objective of financial statements emphasizes a stewardship approach for reporting financial information. f
The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement, a statement of cash flows, and a statement of owners’ or stockholders’ equity. f
Because they are generally shorter, FASB interpretations are subject to less due process, compared to FASB standards. f
The objective of financial reporting uses an entity rather than a proprietary approach in determining what information to report. t
GAAP stands for: generally accepted accounting principles
Accounting standard-setters use the following process in establishing accounting standards Research, discussion paper, exposure draft, standard.
GAAP is comprised of: any accounting guidance included in the FASB Codification.
The authoritative status of the conceptual framework is as follows It is used when there is no standard or interpretation related to the reporting issues under consideration
The objective of financial reporting places most emphasis on reporting to capital providers.
General-purpose financial statements are prepared primarily for external users
Economic consequences of accounting standard-setting means: accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.
The expectations gap is: ) what the public thinks accountants should do and what accountants think they can do
Created by: Virajasaur