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ACFM Exam 1
| Term | Definition |
|---|---|
| The objective of general-purpose financial reporting is to provide _____ info about the reporting entity that is useful to existing and potential ______, _______, and other creditors in making decisions about providing resources to the entity | Financial, Investors, Lenders |
| The two fundamental qualitative characteristics that make accounting info useful are _______ and ________ ______________. | Relevance & Faithful Representation |
| _________ info is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Predictive Value, Confirmatory Value, and Materiality. | Relevant |
| _______ ______________ means that the numbers and descriptions match what really existed or happened. | Faithful Representation |
| How is faithful representation characterized? | Completeness, Neutrality, and Freedom From Error |
| Enhancing qualitative characteristics are ________, _________, ________, and __________. | Comparability, Verifiability, Timeliness, and Understandability |
| ________ is the quality of info that enables users to identify similarities in and differences between two sets of economic phenomena. | Comparability |
| ________ means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. | Verifiability |
| ________ means having info available to decision-makers before it loses its capacity to influence decisions. | Timeliness |
| ________ means that info is presented clearly and concisely to make it comprehensible to users who have a reasonable knowledge of business and economic activities. | Understandability |
| Who has the statutory responsibility to set financial accounting standards? | SEC |
| SEC reporting usually reflects what? | ESG |
| What are the 10 financial statement elements? | Assets, Liabilities, Equity, Investments by Owners, Distributions to Owners, Revenues, Expenses, Gains, Losses, and Comprehensive Income |
| ________ are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. | Assets |
| _________ are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. | Liabilities |
| The _________ _________ assumption means that economic activity can be identified specifically with an economic entity. | Economic Entity |
| The ________ - _________ assumption states that the business entity will continue to operate indefinitely > 1 year. | Going-Concern |
| The _________ assumption implies that the economic activities of an enterprise can be divided into artificial time periods. | Periodicity |
| The _______ ______ assumption states that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis. | Monetary Unit |
| What does recognition mean/do? | Puts a dollar amount on it and then puts it somewhere on financial statements |
| An item and info about it should meet four fundamental recognition criteria to be recognized in the financial statements: ___________, ____________, _____________, and ___________. | Definition, Measurability, Relevance, and Reliability |
| __________: The item meets the definition of an element of financial statements. | Definition |
| __________: The item has a relevant attribute measurable with sufficient reliability. | Measurability |
| __________: The info about it is capable of making a difference in user decisions. | Relevance |
| __________: The info is representationally faithful, verifiable, and neutral. | Reliability |
| The _________ ___________ principle dictates that companies recognize revenue in the accounting period in which the performance obligation is satisfied. | Revenue Recognition |
| The __________ __________ principle states that expenses should be matched with revenues whenever it is reasonable and practicable to do so. | Expense Recognition |
| The FASB specifies five different measurement attributes: | Historical Cost, Net Realizable Value, Current Cost, Present Value, and Fair Value |
| ________ ___________: original transaction value adjusted for depreciation and amortization. | Historical Cost |
| ______ _________ _________: the amount of cash into which an asset is expected to be converted in the ordinary course of business. | Net Realizable Value |
| _________ _________: the cost that would be incurred to purchase or reproduce the asset. | Current Cost |
| _________ _________: the current value of future cash flows, calculated by applying the time value of money. | Present Value |
| _________ _________: the price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date. | Fair Value |
| The ________ __________ refers to the notion that the benefits of reporting financial info should justify and be greater than the costs imposed on supplying it. | Pervasive Constraint |
| GAAP has evolved from a _______/__________ approach to an _______/__________ approach, with the FASB now emphasizing proper valuation of assets and liabilities as the primary goal of financial reporting. | Revenue, Expense, Assets, Liabilities |
| What are the five financial statements? | Balance Sheet, Income Statement, Statement of Comprehensive Income, Statement of Cash Flows, and Statement of Shareholders' Equity |
| What is the overriding objective? | Decision Usefulness |
| Step 1: Obtain info about external transactions from _______ ________. | Source Documents |
| Step 2: Analyze the _________. | Transaction |
| Step 3: Record the transaction in a ________. | Journal |
| Step 4: Post from the ________ to the ________ accounts. | Journal, Ledger |
| Step 5: Prepare an _________ _______ __________. | Unadjusted Trial Balance |
| Step 6: Record ___________ entries and post too the _________ _______ accounts. | Adjusting, General Ledger |
| Step 7: Prepare an _________ ________ ____________. | Adjusted Trial Balance |
| Step 8: Prepare _____________ _____________. | Financial Statements |
| Step 9: _________ the ____________ accounts to ___________ ____________. | Close, Temporary, Retained Earnings |
| Step 10: Prepare a _____________ _________ ____________. | Post-Closing Trial Balance |
| What steps are during the accounting period? | Steps 1-4 |
| What steps are at the end of the accounting period? | Steps 5-8 |
| What steps are at the end of the year? | Steps 9-10 |
| Adjusting entries are necessary for three situations: ___________, ____________, and _______________. | Prepayments (Deferrals), Accruals, and Estimates |
| ____________ occur when the cash flow precedes either expense or revenue recognition. | Prepayments |
| __________ __________ are the costs of assets acquired in one period and expensed in a future period. | Prepaid Expenses |
| __________ ____________ are created when company receives cash from a customer in one period for goods or services that are to be provided in a future period. | Deferred Revenues |
| ______________ occur when the cash flow comes after either expense or revenue recognition. | Accruals |
| ________ ____________ represent liabilities recorded when an expense has been incurred prior to cash payment. | Accrued Liabilities |
| ________ ____________ involve situations when the revenue is recognized in a period prior to the cash receipt. | Accrued Receivables |
| Another phrase for __________ is valuation adjustments. | Estimates |
| Most companies convert from an _________ _______ to a ______ ______ when preparing the statement of cash flows. | Accrual Basis, Cash Basis |
| In operating assets you __________ increases and _________ decreases. Do NOT include cash! | Subtract, Add |
| For operating liabilities, you _________ increases and _________ decreases. Do NOT include dividends! | Add, Subtract |
| To calculate revenue, to cash received from customers, we _________ increases and __________ decreases in accounts receivable. | Add, Subtract |
| To calculate revenue, to cash received from customers we ___________ increases and _________ decreases in deferred revenues. | Subtract, Add |
| To calculate expenses, from cash paid for, we _________ decreases and ____________ increases in operating assets (prepaid expenses and supplies). | Add, Subtract |
| To calculate expenses, from cash paid for, we _________ increases and __________ decreases in accrued liabilities. | Add, Subtract |
| When preparing a statement of cash flows: | Start with Net Income, Add back Non-Cash Expenses, Subtract Increases & Add Decreases in Operating Assets, Add Increases and Subtract Decreases in Liabilities, Remove Income Statement Effects of Gains/Losses because they are investing/financing activities |
| What are the eight mandatory disclosures? | Summary of Significant Accounting Policies, Descriptions of Subsequent Events, Noteworthy Events/ Transactions, MD&A, Management's Responsibilities, Compensation of Directors & Top Executives, Auditor's Report, & Segment/Graphical/Customer Disclosures |
| ___________ _____ _________________ ______________ _____________ discloses management's choices among acceptable accounting methods, such as depreciation approach, inventory valuation, revenue recognition policies, and definition of cash equivalents. | Summary of Significant Accounting Policies |
| ______________ _____ _______________ __________ discloses material events occurring after the fiscal year-end but before financial statements are issued. | Descriptions of Subsequent Events |
| ___________ __________ & _______________ include related-party transactions, which involve management, owners, or affiliated companies. | Noteworthy Events & Transactions |
| ________________ ____________ & _____________ management's perspective on the company performance, operations, liquidity, and capital resources. | Management's Discussion & Analysis |
| ________________ ____________________ _______ ______ & ______ asserts management's responsibility for financial statement preparation, info in the annual report, and maintaining effective internal controls over financial reporting. | Management's Responsibilities for F/S & ICFR |
| ______________ ____ _______________ & _______ _____________ the proxy statement contains disclosures on compensation to directors, executives, and the median employee. | Compensation of Directors & Top Executives |
| ___________ ____________ auditors examine financial statements and internal control procedures to attest to the fairness of the financial statements. | Auditor's Report |
| ________________, ____________, & _____________ _______________ the accounting profession requires public business entities to provide supplemental info concerning individual operating segments. | Segment, Geographical, & Customer Disclosures |
| What are the four basic types of auditor's reports? | Unqualified, Unqualified with an Explanatory Paragraph, Qualified, and Adverse/Disclaimer |
| __________ _______: an operating segment must be disclosed if it has at least 10% of the total sales of the entire entity (both internal & external). | Size Test |
| _____________ _____________ ________: the sum of reported operating segments must contain at least 75% of the total external sales of the entire entity. | Reporting Sufficiency Test |
| _____________ _____________ includes revenues from external customers attributed to the entity's country of domicile and all foreign countries in total, and long-lived assets located in the entity's country of domicile and all foreign countries in total. | Geographic Information |
| If _______ or more of revenue of an entity is derived from transactions with a single customer, entity must disclose that fact, the total amount of revenue from that customer, and the identity of the operating segment or segments reporting the revenue. | 10% |
| Voluntary disclosures include: | Environmental, Date Privacy, etc |
| ____________ ___________ refers to the ability of reported earnings (income) to predict a company's future earnings. | Earnings Quality |
| _____________ ___________ result from transactions likely to generate similar profits in the future, while ___________ ____________ are not likely to occur again in the foreseeable future. | Permanent Earnings, Temporary Earnings |
| ____________ ________ arise when management plans to materially change the scope of business operations or the manner in which they are conducted. | Restructuring Costs |
| _______________ _____________ arise when management decides to sell or dispose of a material component of their business. Net of tax! | Discontinued Operations |
| Discontinued Operations Checklist: | Calculate Income/Loss from Operations up to Disposal Date, Determine any Impairment Loss on Segment's Assets, Calculate Gain/Loss on Sale of Segment, Compute Related Tax Effects, and Add up all above items to get the Total Discontinued Operations Amount |
| Other Comprehensive Income items include: | Unrealized Holding Gains/Losses on Available for Sale Debt Investments, Gains/Losses from Postretirement Benefit Plans, Certain Deferred Gains/Losses from Derivatives, and Foreign Currency Translation Adjustments |
| Accumulated other comprehensive income is reported as an ____________ component of equity in the balance sheet. | Additional |
| What are the two different ways to handle comprehensive income? | Single Continuous Statement or Two Separate Consecutive Statements |
| __________ ___________, within GAAP, creates a smoother pattern in earnings over time by altering assumptions and estimates. | Income Smoothing |
| ___________ ___________ involves moving operating expenses to a non-operating expense classification to report fewer operating expenses and higher operating income. | Classification Shifting |
| ______-_______ __________ exclude certain revenues and expenses at management's discretion and are often referred to as street earnings, adjusted earnings, or core earnings. | Non-GAAP |
| Accounting changes fall into three categories: | Change in Accounting Principle, Change in Estimate, and Change in Reporting Entity |
| ____________ ___ ____________ ____________ are generally accounted for retrospectively by revising prior years' financial statements. | Changes in Accounting Principle |
| ____________ ___ ___________ ____________ are accounted for prospectively. | Changes in Accounting Estimate |
| Changes in depreciation, amortization, or depletion method are considered changes in accounting method, and are accounted for prospectively, but require ____________. They are a change in estimate & principle! | Justification |
| _______ ____ incorporates the dilutive effect of all potential common shares in the calculation of EPS. Referred to as pretend shares that are not yet equity. | Diluted EPS |
| The statement of cash flows reports cash flows from: | Operating, Investing, and Financing Activities |
| __________ ___________ primarily relate to current assets and liabilities. | Operating Activities |
| __________ ___________ relate to long-term assets. | Investing Activities |
| __________ ___________ relate to long-term liabilities and shareholders' equity on the balance sheet. | Financing Activities |
| Dividends Received are classified as ____________ ___________. | Operating Activities |
| Dividends Paid are classified as ___________ __________. | Financing Activities |
| Interest Received and Paid are both classified as ___________ __________. | Operating Activities |
| Income from Continued Operations, Income from Discontinued Operations, and Net Income all get separate _______. | EPS |
| We must break up the _______ & _______ EPS. Do we do this for comprehensive income? | Basic & Diluted, NO |
| Market to Book Equation | Market Capitalization / Net Book Value |
| Price to Earnings Equation | Current Share Price / Earnings Per Share |
| Current Ratio Equation | Current Assets / Current Liabilities |
| Quick Ratio | (Current Assets - Inventory) / Current Liabilities |
| Cash Ratio | (Cash + Cash Equivalents) / Current Liabilities |
| Operating Cash Flow Ratio | Operating Cash Flow / Current Liabilities |
| Debt to Assets Equation | Total Debt / Total Assets |
| Debt to Equity Equation | Total Liabilities / Total Shareholders' Equity |
| Times Interest Earned Equation | Income Before Interest & Taxes / Interest Expense |
| Asset Turnover Equation | Net Sales / Average Total Assets |
| Receivables Turnover Equation | Net Credit Sales / Average Accounts Receivable |
| Inventory Turnover Equation | COGS / Average Inventory |
| PP&E Turnover Equation | Revenue / PP&E |
| Average Collection Period Equation | 365 / Receivables Turnover Ratio |
| Average Days in Inventory Equation | 365 / Inventory Turnover Ratio |
| Profit Margin Equation | Net Profit / Revenue |
| Return on Assets Equation | Net Income / Average Total Assets |
| Return on Equity Equation | Net Income / Shareholders' Equity |
| Earnings Per Share Equation | (Net Income - Preferred Dividends) / Average Outstanding Shares |
| ___________ or net assets is the residual interest in the assets of an entity that remains after deducting its liabilities. | Equity |
Created by:
MOWGaming04
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