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Int. Financial Acc.
Financial Accounting Exam 1
| Question | Answer |
|---|---|
| What is the type of financial information relayed to external decision makers referred to as? | Financial accounting |
| What is the primary objective of financial reporting? | To provide financial information that is useful to capital providers |
| Relevance requires that information possess confirmatory and/or? | Predictive value |
| What is a practical constraint on qualitative characteristics? | The cost effectiveness (do benefits outweigh the cost?) |
| An asset requires which properties? | Relates to an entity, has an economic benefit, and has present right (NOT requiring a receipt of cash) |
| What is the assumption that an entity will remain in business for the future unless disclosed? | Going concern assumption |
| Revenue is recognized when? | When goods/services are exchanged to the customer even if cash isn't received immediately (unless under cash accounting) |
| What are the two qualitative characteristics of financial information? | Enhancing characteristics & fundamental characteristics |
| What are the two fundamental characteristics? | Relevance & faithful representation |
| What are the elemnts of relevance? | Predictive value, confirmatory value, and materiality (would any omitted info be useful or hurtful to capital providers) |
| What are the elemnts of faithful representation? | Free from error, complete, & neutral |
| What are the elements for enhancing characteristics? | Comparability, verifiability, timeliness, understandability |
| Write out the entire characteristics chart of financial accounting, as well as the full accounting cycle!! | N/A |
| What is the double-entry system? | The idea that each transaction must have at least 2 accounts, one being a credit and one a debit so that BOTH BALANCE OUT |
| Adjusting entries are needed for what? | Prepayments, deferrals, accruals, & estimates (estimate for bad debts, depreciation, closing entries) |
| What is the economic entity assumption? | All financial activities must be directly traced back to the entity that incurred it (ex. a business transaction related to the owner directly shouldn't be exhibited, ONLY those through the entity in question) |
| Periodicity Assumption | Financial reporting & its statements are divided and published on a timely schedule (monthly, quarterly, yearly), so that capital providers can compare financial performance |
| Monetary Unit Assumption | All financial transactions are recorded with a stable monetary unit (ex. the US dollar) so that each transaction is truly representative and comparable to the next without misleading adjustments for differences in purchasing power of currency |
| What is the expense recognition principle? | Expenses should be recognized in the same period that their associated revenue is incurred (ex. COGS being recorded whenever the goods are actually sold instead of when bought) |
| What is the revenue recognition principle? | Revenue is not recorded until the services are ACTUALLY PERFORMED (ex. deferred revenue is recorded for future services, not revenue, as to not OVERSTATE REVENUE and lie to outside capital providers) |
| What are the properties of the income statement? | Has a period of time, revenue-expenses=net income |
| What are the properties of the statement of stockholder's equity? | Stock & retained earnings presented, net income + stock issued - treasury stock - dividends + previous retained earnings = current retained earnings & common stock to make up EQUITY |
| What are the properties of the statement of cash flows? | The balance of cash after the 3 cash activities; INVESTING, FINANCING, OPERATING |
| What are explanatory notes? | Notes left at the bottom of financial statements to help explain the document, helps with the enhancing characteristic of UNDERSTANDBILITY |
| What are the properties of the balance sheet? | Has a period of time, assets = liabilities + stockholder's equity, prepared LAST for the financial statements (before closing entries still) |
| What is the full disclosure principle? | ALL relevant information must be presented in the financial statements, both financial data and non-financial data if it effects the financial position of a business whatsoever |
| What is the mixed-attribute measurement principle? | Allows businesses to use different measurement bases if it better reflects the position of an account (ex. using historical cost over market cost if it better reflects the true cost of their asset, but it MUST BETTER REFLECT IT or else it isn't neutral |
| A collection of all of a company's various accounts and their balances is the?? | The ledger |
| A list of all the ledger accounts and their balances at a particular date, showing Debits=Credits, is a what? | Trial Balance |
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