AC 391 Ch 1-4
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| generally accepted accounting principles | GAAP
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| research, discussion paper, exposure draft, standard | process used in establishing accounting standards by accounting standard-setters
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| any accounting guidance included in FASB Codification | GAAP is comprised of
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| it is used when there is no standard or interpretation related to the reporting issues under consideration | the authoritative status of the conceptual framework is as follows
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| reporting to capital providers | the objective of financial reporting places most emphasis on
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| external users, particularly equity investors and creditors | general-purpose financial statements are prepared primarily for
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| accounting standards can have detrimental impacts on the wealth levels of the providers of financial information | economic consequences of accounting standard-setting means
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| expectation gap | what the public thinks accountants should do and what accountants think they can do
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| comparability | quality of information that permits users to identify similarities in and differences between two sets of economic phenomena
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| timeliness | having information available to users before it loses its capacity to influence decisions
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| predictive value | information about an economic phenomenon that has value as an input to the processes used by capital
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| relevance | information that is capable of making a difference in the decisions of users in their capacity as capital providers
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| neutrality | absence of bias intended to attain a predetermined result or to induce a particular behavior
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| faithful representation | quality of information that assures users that information represents the economic phenomena that it purports to represent
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| confirmatory value | information about an economic phenomenon that corrects past or present expectations based on previous evaluations
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| free from error | the extent to which information is accurate in representing the economic substance of a transaction
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| completeness | includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent
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| understandability | quality of information that allows users to comprehend its meaning
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| income statement | interest revenue
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| balance sheet | cash
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| income statement | sales revenue
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| balance sheet | accounts receivable
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| income statement | sales returns and allowances
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| balance sheet | prepaid insurance
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| balance sheet | allowance for doubtful accounts
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| income statement | sales discounts
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| balance sheet | land, equipment, and buildings
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| income statement | cost of goods sold
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| balance sheet | accumulated depreciation
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| balance sheet | notes receivable
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| income statement | selling expenses
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| balance sheet | accounts payable
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| balance sheet | bonds payable
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| income statement | administrative and general expenses
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| balance sheet | accrued liabilities
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| income statement | interest expense
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| balance sheet | notes payable
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| income statement | loss from earthquake damage
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| balance sheet | common stock
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| balance sheet | retained earnings
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| the identification, measurement, and communication of financial information about economic entities to interested parties | essential characteristics of accounting
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| To provide disclosure required by generally accepted accounting principles | What is the purpose of information presented in notes to the financial statements?
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| promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securities | An effective process of capital allocation is critical to a healthy economy, which
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| entity perspective | Companies viewed as separate and distinct from their owners.
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| decision-usefulness | ability to generate net cash inflows and management’s ability to protect and enhance the capital providers’ investments
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| Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note Disclosure | list of financial statements
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| Securities and Exchange Commission (SEC). American Institute of Certified Public Accountants (AICPA). Financial Accounting Standards Board (FASB). | parties involved in standard-setting
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| topics are identified and placed on the board’s agenda. | The first step taken in the establishment of a typical FASB statement is
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| to provide in one place all the authoritative literature related to a particular topic | The FASB’s primary goal in developing the Codification is
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| financial reporting challenges | Nonfinancial measurements.
Forward-looking information.
Soft assets.
Timeliness.
Understandability.
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| IASB and IOSCO. | The major key players on the international side are the:
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| International Financial Reporting Standards, International Accounting Standards, and international accounting interpretations. | IFRS is comprised of:
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| The IASB structure is quite similar to the FASB’s, except the IASB has a larger number of board members. | Which of the following statements is true?
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| International Financial Reporting Standards. | IFRS stands for:
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| To develop a coherent set of standards and rules. To solve new and emerging practical problems | need for conceptual framework
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| true | true or false? A conceptual framework underlying financial accounting is important because it can lead to consistent standards and it prescribes the nature, function, and limits of financial accounting and financial statements.
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| false | true or false? A conceptual framework underlying financial accounting is necessary because future accounting practice problems can be solved by reference to the conceptual framework and a formal standard-setting body will not be necessary.
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| Basic Objectives Second Level = Qualitative Characteristics and Elements Third Level = Recognition, Measurement, and Disclosure Concepts. | First Level of conceptual framework
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| Qualitative Characteristics and Elements | Second Level of conceptual framework
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| Recognition, Measurement, and Disclosure Concepts. | Third Level of conceptual framework
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| The objectives and concepts for use in developing standards of financial accounting and reporting. | What are the Statements of Financial Accounting Concepts intended to establish?
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| The needs of the users of the information. | According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on?
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| material | Information is ________ if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information.
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| Assets Liabilities Equity | moment in time
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| Investment by owners Distribution to owners Comprehensive income Revenue Expenses Gains Losses | period of time
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| A decrease in a liability from primary operations. | According to the FASB conceptual framework, an entity’s revenue may result from
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| Economic Entity | company keeps its activity separate from its owners and other businesses
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| Going Concern | company to last long enough to fulfill objectives and commitments
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| Monetary Unit | money is the common denominator
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| Periodicity | company can divide its economic activities into time periods
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| Historical cost | provides a reliable benchmark for measuring historical trends
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| Fair value | information may be more useful than historical cost
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| Revenue Recognition | requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied
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| Expense Recognition | “Let the expense follow the revenues.”
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| Full Disclosure | providing information that is of sufficient importance to influence the judgment and decisions of an informed user
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| Cost Constraint | cost of providing information must be weighed against the benefits that can be derived from using it.
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| IFRS does not allow use of fair value as a measurement basis. | Which of the following statements about the IASB and FASB conceptual frameworks is not correct?
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| Under IFRS, there are the same number of financial statement elements as in GAAP. | Which of the following statements is false?
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| Should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making? | The issues that the FASB and IASB must address in developing a common conceptual framework include all of the following except:
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| accounting information systems | Collects and processes transaction data.
Disseminates the financial information to interested parties.
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| account | shows the effect of transactions on a given asset, liability, equity, revenue, or expense account
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| External events | between an entity and its environment.
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| Internal events | event occurring entirely within an entity.
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| General Journal | a chronological record of transactions. Journal Entries are recorded in the journal.
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| Posting | Transferring amounts from journal to ledger.
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| to identify the type of account involved, and to determine whether a debit or a credit is required | purpose of transaction analysis
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| Trial Balance | A list of each account and its balance; used to prove equality of debit and credit balances.
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| Revenues | are recorded in the period in which services are performed
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| Expenses | are recognized in the period in which they are incurred
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| unearned revenues. | Receipt of cash before the services are performed is recorded as a liability called
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| accrued revenues. | Revenues recorded for services performed but cash has yet to be received at the statement date are
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| accrual-based accounting | recognize revenue when the performance obligation is satisfied and
expenses in the period incurred,
without regard to the time of receipt or payment of cash.
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| cash-based accounting | record revenue only when they receive cash, and
record expenses only when they disperse cash.
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| have a cost that does not exceed the benefits. be transparent. provide a suitable starting point. | Information in a company’s first IFRS statements must:
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| None of the above. | The transition date is the date:
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| recast previously issued financial statements in accordance with IFRS. | When converting to IFRS, a company must:
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