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BA311
First Exam
| Question | Answer |
|---|---|
| What are the THREE PRIMARY ingredients for RELEVANCE? | Predictive Value Feedback Value Timeliness |
| What are the THREE PRIMARY ingredients for RELIABILITY | Verifiable Representational Faithfulness Neutrality |
| What are the TWO PRIMARY qualities that make accounting information useful for decision making? | Relevance Reliability |
| What are the TWO SECONDARY qualities that make accounting information useful for decision making? | Comparability Consistency |
| Information that is measured and reported in a similar matter for different companies is considered: | Comparability |
| A company that applies the same accounting treatment to similar events, from period to period uses: | Consistency |
| What are the basic elements of Financial Statements? | Assets, Liabilities, Equity, Investment by Owners, Revenues/Expenses, Gains/Losses |
| Economic Entity Assumption | Economic activity applies to a unit of accountability |
| Going Concern Assumption | Expectation that a business lasts long enough to fulfill its objectives and commitments |
| Monetary Unit Assumption | Only provide information of monetary value, NOT in units |
| Periodicity Assumption | Activities can be divided into artificial time periods |
| Fair Value Principle | The price that would be received to sell an asset or paid to transfer liability |
| Historical Cost Principle | Reporting assets and liabilities based on the acquisition price |
| Revenue Recognition Principle | Revenue is recognized when it is BOTH Recognized / Realizable AND Earned |
| What industries ignore the Revenue Recognition Principle? | Construction, Farming, Real Estate |
| Expense Recognition Principle | MATCH efforts (EXPENSE) with accomplishment (REVENUE) |
| Full Disclosure Principle | Providing information that is of sufficient importance to influence judgement and decisions of an informed user |
| Cost-Benefit Relationship | The cost of providing information compared to the benefits that can be derived from the information |
| Materiality | Decision to report items that are significant (Material) in comparison to ones that are insignificant (Immaterial). Think of the waste basket example |
| Industry Practice | Particular industries may depart from GAAP due to the nature of their industry. In example: Farmers or Utility Companies |
| Conservatism | When in doubt, choose the solution that is least likely to overstate assets or income |
| What are the FOUR Accounting Assumptions? | Economic Entity Going Concern Monetary Unit Periodicity |
| What are the FOUR Accounting Principles? | Measurement Revenue Recognition Expense Recognition Full Disclosure |
| What are the FOUR Accounting Constraints? | Cost-Benefit Materiality Industry Practice Conservatism |
| Fair Value changes are not recognized in the accounting records | Historical Cost |
| Lower of cost or market is used to value inventories | Conservatism |
| Financial information is presented so that investors will not be misled | Full Disclosure Principle |
| Intangible assets are capitalized and amortized over periods benefited | Expense Recognition Principle |
| Repair tools are expensed when purchased | Materiality |
| Agricultural companies use fair value for purposes of valuing crops | Industry Practices |
| Each enterprise is kept as a unit distinct from its owner or owners | Economic Entity |
| All significant postbalance sheet events are reported | Full Disclosure |
| Revenue is recorded at point of sale | Revenue Recognition |
| The use of consolidated statements is justified | Economic Entity |
| Reporting must be done at defined time intervals | Periodicity |
| An allowance for doubtful accounts is established | Expense Recognition |
| All payments out of petty cash are charged to Miscellaneous Expense | Materiality |
| Goodwill is recorded only at time of purchase | Cost-Principle |
| No Profits are anticipated and all possible losses are recognized | Conservatism |
| A company charges its sales commission costs to expense | Expense Recognition |
| Allocates expenses to revenues in the proper period | Expense Recognition |
| Indicates fair value changes subsequent to purchase are not recorded in the accounts | Historical Cost |
| Ensures that all relevant financial information is reported | Full disclosure principle |
| Rationale why plant assets are not reported at liquidation value | Going concern principle |
| Anticipates all losses, but reports no gains | Conservatism |
| Indicates that personal and business record keeping should be separately maintained | Economic Entity |
| Separates financial information into time periods for reporting purposes | Periodicity |
| Permits the use of fair value valuation in certain industries | Industrial practices |
| Requires information not significant enough to affect the decision of reasonably informed users should be disclosed | Materiality |
| Assumes that the dollar is the measuring stick used to report financial performance | Monetary Unit |
| Arises from peripheral or incidental transactions | Gains or Losses |
| Obligation to transfer resources arising from a past transaction | Liability |
| Increases ownership interest | Investments by owners |
| Declares and pays cash dividends to owners | Distributions to owners |
| Residual interest in the assets of the enterprise after deducting its liabilities | Equity |
| Arises from income statement activities that constitute the entity's ongoing major or central operations | Expenses / Revenues |
| Items characterized by service potential or future economic benefit | Assets |
| Increases assets during a period through sale of product | Revenues |
Created by:
spendo02
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