Accounting Principle Flashcards

1
Q

What is the primary objective of accounting?

A

To measure income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the most authoritative set of accounting pronouncements?

A

The FASB Codification

All pronouncements fall under the Codification umbrella

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the 2 Levels of Authority within the FASB codification?

A

Authoritative and Non-Authoritative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How does managerial accounting differ from financial accounting?

A

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Which financial reports are required to be filed with the SEC?

A

Form 10K - Annual and Audited
Form 10Q - Quarterly and Reviewed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the focus of financial reports for individual companies?

A

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the Primary Constraints of Financial Reporting?

A

Cost vs. Benefit

Materiality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the Secondary Constraints of Financial Reporting?

A

Consistency - Year vs. Year

Comparability - Company vs. Company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the Qualitative Characteristics of Financial Reporting?

A

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the Enhancing Qualitative Characteristics of Financial Reporting?

A

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does Conservatism affect the recording of accounting transactions?

A

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is an accrual?

A

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a deferral?

A

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is recognition in accounting?

A

When an item is recorded and included in the financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Describe fair value with respect to an asset

A

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What market assumptions are made in a fair value assessment?

A

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact - i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What items are included in a Level 1 input in the fair value hierarchy?

A

Price quotes or market prices

For example NYSE or NASDAQ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What items are included in a Level 2 valuation input?

A

Interest rates

Prime rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What items are included in Level 3 inputs of the fair value hierarchy?

A

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are acceptable valuation techniques for fair value?

A

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are current assets?

A

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are current liabilities?

A

Liabilities that will use current assets during the present operating cycle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is an accrued liability?

A

Expense that has been incurred but not paid

Example: rents payable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is a deferred revenue?

A

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

When are revenues recognized?

A

When they have been earned; i.e. company has performed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is a gain?

A

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is a loss?

A

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is an operating cycle?

A

Average time it takes to turn materials or services into Cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is the present value of future cash flows?

A

Valuation method - the current value of a future amount of money using a specific interest rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is historical cost?

A

How much an asset cost - (net of depreciation and amortization)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is replacement cost?

A

How much it would cost to reacquire an asset today (Entrance Cost)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is a market cost?

A

The sale price of an asset (Exit Cost)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is Net Realizable Value?

A

Sale Price of an Asset - Selling/Disposal Fee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

When is royalty income recognized? How is it recognized?

A

Recognized when earned

If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

When is revenue recognized in an installment sale?

A

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What is deferred gross profit?

A

Gross Profit that can’t be recognized until cash is received

D.GP : Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What is the cost recovery method?

A

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What is subscription revenue? How is it recorded?

A

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

How are franchise revenues recorded?

A

Franchisor - Startup franchise fee revenue deferred until substantial performance

Franchisee - Costs are deferred until corresponding revenue is recognized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

How do you calculate sales revenue starting from cash basis income?

A

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)+ Ending Accounts Receivable- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

How do you calculate COGS starting from Cash Basis?

A

Mnemonic: CRAP-I

Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

How are discontinued operations reported? When are they used?

A

Reported Net of Tax after Continuing Operations

Company decides to cease operating a segment of its business (represents a strategic shift and has major effect on operations and financials)

Includes Income (or loss) from the period plus the gain (or loss) from disposal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

For discontinued operations, what are the three requirements for disposal assets?

A

They must be Held for Sale - Sold - or Disposed of another way

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

How are Unusual or Infrequent (formerly Extraordinary) items reported?

A

Reported Two Ways: 1. Income Statement above Income from Continuing Operations or 2. Footnotes. Retrospective OR Prospective Treatment is allowed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What is constant dollar accounting?

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

When are expenses recognized?

A

When they are incurred. Accrue if not yet paid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What are accrued expenses?

A

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

When should impaired assets be written down to fair value and expensed?

A

Immediately.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What major items should be classified under General & Administrative (G&A) expenses?

A

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What are business start-up costs?

A

One-time costs for opening a new business

Expensed as they are incurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

When is interest not expensed?

A

Interest on projects (software) for internal use is not expensed but is instead capitalized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

What are the major components of Comprehensive Income?

A

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

What items are considered cumulative accounting adjustments?

A

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

What is the purpose of a reclassification adjustment?

A

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Where is Comprehensive Income reported?

A

Reported in a Single or Combined Income Statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

What disclosures on accounting policies are required in financial statements?

A

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

What are some major risks and uncertainties that must be disclosed?

A

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Under Cash Basis Accounting how are Revenue and Expenses recognized?

A

Revenue is recognized with Cash Inflow and Expenses Recognized with Cash Outflow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Is Cash Basis Accounting ok for Tax Returns?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

Is Cash Basis Accounting GAAP?

A

No - GAAP uses Accrual Accounting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

What is an advantage of Modified Cash Basis Accounting?

A

It avoids the complexities of GAAP but provides more information that Cash Basis Accounting

62
Q

Is Modified Cash Basis GAAP?

A

No - GAAP uses Accrual Accounting

63
Q

What are the 3 acceptable options for Income Tax Basis Accounting

A

Cash Basis - Accrual Basis - Hybrid Method

64
Q

What are the advantages of the Small and Medium Sized Entity Framework?

A

It simplifies reporting and disclosures for small companies - Reduces Book vs Tax differences - avoids Fair Value measurements (Historical Cost)

65
Q

What are the two options for Income Taxes under the Small and Medium Sized Entity Framework?

A

Deferred Taxes Method and Taxes Payable Method

66
Q

What are the two options for Startup Costs under the Small and Medium Sized Entity Framework?

A

Expensed or Amortized (15 years)

67
Q

How is Goodwill treated under the Small and Medium Sized Entity Framework?

A

Amortized (15 years)

68
Q

What are the required liquidation basis financial statements?

A

Statement of Net Assets in Liquidation and Statement of Changes in Net Assets in Liquidation

69
Q

What is a Development Stage Entity?

A

A company that is still in the formation stage and hasn’t yet begun principal operations or produced significant revenue

70
Q

What is the key benefit of the accounting rules for Development Stage Entities?

A

Cost savings without sacrificing financial statement usefulness

71
Q

What is the primary objective of accounting?

A

To measure income

72
Q

What is the most authoritative set of accounting pronouncements?

A

The FASB Codification

All pronouncements fall under the Codification umbrella

73
Q

What are the 2 Levels of Authority within the FASB codification?

A

Authoritative and Non-Authoritative

74
Q

How does managerial accounting differ from financial accounting?

A

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

75
Q

Which financial reports are required to be filed with the SEC?

A

Form 10K - Annual and Audited
Form 10Q - Quarterly and Reviewed

76
Q

What is the focus of financial reports for individual companies?

A

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

77
Q

What are the Primary Constraints of Financial Reporting?

A

Cost vs. Benefit

Materiality

78
Q

What are the Secondary Constraints of Financial Reporting?

A

Consistency - Year vs. Year

Comparability - Company vs. Company

79
Q

What are the Qualitative Characteristics of Financial Reporting?

A

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

80
Q

What are the Enhancing Qualitative Characteristics of Financial Reporting?

A

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

81
Q

How does Conservatism affect the recording of accounting transactions?

A

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

82
Q

What is an accrual?

A

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

83
Q

What is a deferral?

A

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

84
Q

What is recognition in accounting?

A

When an item is recorded and included in the financial statements

85
Q

Describe fair value with respect to an asset

A

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

86
Q

What market assumptions are made in a fair value assessment?

A

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact - i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

87
Q

What items are included in a Level 1 input in the fair value hierarchy?

A

Price quotes or market prices

For example NYSE or NASDAQ

88
Q

What items are included in a Level 2 valuation input?

A

Interest rates

Prime rate

89
Q

What items are included in Level 3 inputs of the fair value hierarchy?

A

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

90
Q

What are acceptable valuation techniques for fair value?

A

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

91
Q

What are current assets?

A

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

92
Q

What are current liabilities?

A

Liabilities that will use current assets during the present operating cycle

93
Q

What is an accrued liability?

A

Expense that has been incurred but not paid

Example: rents payable

94
Q

What is a deferred revenue?

A

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

95
Q

When are revenues recognized?

A

When they have been earned; i.e. company has performed

96
Q

What is a gain?

A

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

97
Q

What is a loss?

A

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

98
Q

What is an operating cycle?

A

Average time it takes to turn materials or services into Cash

99
Q

What is the present value of future cash flows?

A

Valuation method - the current value of a future amount of money using a specific interest rate

100
Q

What is historical cost?

A

How much an asset cost - (net of depreciation and amortization)

101
Q

What is replacement cost?

A

How much it would cost to reacquire an asset today (Entrance Cost)

102
Q

What is a market cost?

A

The sale price of an asset (Exit Cost)

103
Q

What is Net Realizable Value?

A

Sale Price of an Asset - Selling/Disposal Fee

104
Q

When is royalty income recognized? How is it recognized?

A

Recognized when earned

If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

105
Q

When is revenue recognized in an installment sale?

A

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

106
Q

What is deferred gross profit?

A

Gross Profit that can’t be recognized until cash is received

D.GP : Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

107
Q

What is the cost recovery method?

A

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

108
Q

What is subscription revenue? How is it recorded?

A

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

109
Q

How are franchise revenues recorded?

A

Franchisor - Startup franchise fee revenue deferred until substantial performance

Franchisee - Costs are deferred until corresponding revenue is recognized

110
Q

How do you calculate sales revenue starting from cash basis income?

A

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)+ Ending Accounts Receivable- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis

111
Q

How do you calculate COGS starting from Cash Basis?

A

Mnemonic: CRAP-I

Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis

112
Q

How are discontinued operations reported? When are they used?

A

Reported Net of Tax after Continuing Operations

Company decides to cease operating a segment of its business (represents a strategic shift and has major effect on operations and financials)

Includes Income (or loss) from the period plus the gain (or loss) from disposal

113
Q

For discontinued operations, what are the three requirements for disposal assets?

A

They must be Held for Sale - Sold - or Disposed of another way

114
Q

How are Unusual or Infrequent (formerly Extraordinary) items reported?

A

Reported Two Ways: 1. Income Statement above Income from Continuing Operations or 2. Footnotes. Retrospective OR Prospective Treatment is allowed.

115
Q

What is constant dollar accounting?

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

116
Q

When are expenses recognized?

A

When they are incurred. Accrue if not yet paid.

117
Q

What are accrued expenses?

A

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

118
Q

When should impaired assets be written down to fair value and expensed?

A

Immediately.

119
Q

What major items should be classified under General & Administrative (G&A) expenses?

A

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

120
Q

What are business start-up costs?

A

One-time costs for opening a new business

Expensed as they are incurred

121
Q

When is interest not expensed?

A

Interest on projects (software) for internal use is not expensed but is instead capitalized

122
Q

What are the major components of Comprehensive Income?

A

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

123
Q

What items are considered cumulative accounting adjustments?

A

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

124
Q

What is the purpose of a reclassification adjustment?

A

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

125
Q

Where is Comprehensive Income reported?

A

Reported in a Single or Combined Income Statement

126
Q

What disclosures on accounting policies are required in financial statements?

A

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

127
Q

What are some major risks and uncertainties that must be disclosed?

A

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability

128
Q

Under Cash Basis Accounting how are Revenue and Expenses recognized?

A

Revenue is recognized with Cash Inflow and Expenses Recognized with Cash Outflow

129
Q

Is Cash Basis Accounting ok for Tax Returns?

A

Yes

130
Q

Is Cash Basis Accounting GAAP?

A

No - GAAP uses Accrual Accounting

131
Q

What is an advantage of Modified Cash Basis Accounting?

A

It avoids the complexities of GAAP but provides more information that Cash Basis Accounting

132
Q

Is Modified Cash Basis GAAP?

A

No - GAAP uses Accrual Accounting

133
Q

What are the 3 acceptable options for Income Tax Basis Accounting

A

Cash Basis - Accrual Basis - Hybrid Method

134
Q

What are the advantages of the Small and Medium Sized Entity Framework?

A

It simplifies reporting and disclosures for small companies - Reduces Book vs Tax differences - avoids Fair Value measurements (Historical Cost)

135
Q

What are the two options for Income Taxes under the Small and Medium Sized Entity Framework?

A

Deferred Taxes Method and Taxes Payable Method

136
Q

What are the two options for Startup Costs under the Small and Medium Sized Entity Framework?

A

Expensed or Amortized (15 years)

137
Q

How is Goodwill treated under the Small and Medium Sized Entity Framework?

A

Amortized (15 years)

138
Q

What are the required liquidation basis financial statements?

A

Statement of Net Assets in Liquidation and Statement of Changes in Net Assets in Liquidation

139
Q

What is a Development Stage Entity?

A

A company that is still in the formation stage and hasn’t yet begun principal operations or produced significant revenue

140
Q

What is the key benefit of the accounting rules for Development Stage Entities?

A

Cost savings without sacrificing financial statement usefulness

141
Q

How are changes in accounting principle applied?

A

Retrospective Application:
Prior Periods adjusted
Retained Earnings adjusted
Completed Contract to % Completion
Ex: LIFO to FIFO

142
Q

Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?

How would it be applied?

A

A change of principle.

Applied retrospectively.

143
Q

Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate?

How would this change be applied?

A

A change in accounting principle.

Applied retrospectively.

144
Q

How is a change in accounting estimate applied?

A

A change in accounting estimate is applied prospectively (going forward).

No backwards adjustment is made.

145
Q

Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate?

How would this change be applied?

A

Change in depreciation method would be a change in accounting estimate.

It is applied prospectively.

146
Q

How is a correction of an accounting error made?

A

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.

The correction of the error must be included in the footnotes.

147
Q

What are the requirements for a prior period adjustment?

A

Effect is Material

Is identifiable in Prior Period

Couldn’t be estimated in Prior Periods

148
Q

How is a change from a non-GAAP accounting method to a GAAP method recorded?

A

It is treated as a correction of an accounting error.

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements

Correction of the error must be included in the footnotes

149
Q

How does an inventory error effect the financial statements?

A

Effect on Ending Inventory : Effect on Net Income

If one is overstated- both overstated. If one is understated- both understated.

Misstating inventory corrects itself after TWO periods.

150
Q

How is a change in entity recorded?

A

Applied retrospectively.

All prior periods presented for comparative purposes must reflect the change

Footnote disclosures must be made

Changing to Consolidated Statements