Chapter 1

Question 1

Provides relevant information to various external users

Answer 1

Financial Accounting

Question 2

Mechanisms that foster the allocation of resources efficiently

Answer 2

Capital Markets

Question 3

The dominant form of business organization that acquires capital from investors in exchange for ownership interest and from creditors by borrowing

Answer 3

Corporation

Question 4

provide for new cash by the issuance of stocks and bonds by the corporation

Answer 4

Initial Market Transactions

Question 5

Provide for the transfer of stocks and bonds among individuals and institutions

Answer 5

Secondary Market Transactions

Question 6

Dividends +Share Price Appreciation
____________________________
Initial Investment

Answer 6

Rate of Return

Question 7

Difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers

Answer 7

Cash Basis Accounting/Net Operating Cash Flow

Question 8

Measurement of the entity’s accomplishment and resource sacrifices during the period, regardless of when cash is received or paid

Answer 8

Accrual Accounting

Question 9

Set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes

Answer 9

Generally Accepted Accounting Principles (GAAP)

Question 10

Responsible for setting accounting and reporting standards for companies whose securities are publicly traded

Answer 10

Securities and Exchange Commission (SEC)

Question 11

The first private sector body that was delegated the task of setting accounting standards

Answer 11

Committee on Accounting Procedure (CAP)

Question 12

National organization of professional public accountants

Answer 12

American Institute of Accountants(AIA)/ American Institute of Certified Public Accountants (AICPA)

Question 13

The second private sector body delegated the task of setting accounting standards

Answer 13

Accounting Principles Board (APB)

Question 14

The current private sector body that has been delegated the task of setting accounting standards

Answer 14

Financial Accounting Standards Board (FASB)

Question 15

Responsible for selecting the members of FASB and its Advisory Council, ensuring adequate funding of FASB activities, and exercising general oversight of the FASB’s activities

Answer 15

Financial Accounting Foundation (FAF)

Question 16

Responsible for providing more timely responses to emerging financial reporting issues

Answer 16

Emerging Issues Task Force (EITF)

Question 17

Deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting standards

Answer 17

Conceptual Framework

Question 18

Objectives are to develop a single set of high-quality, understandable global accounting standards, to promote the use of those standards, and to bring about the convergence of national accounting standards and International Accounting Standards

Answer 18

International Accounting Standards Board (IASB)

Question 19

Umbrella organization formed to develop global accounting standards

Answer 19

International Accounting Standards Committee (IASC)

Question 20

Developed by the IASB and used by more than 100 countries

Answer 20

International Financial Reporting Standards (IFRSs)

Question 21

Independent intermediaries who help ensure that management has appropriately applied GAAP in preparing the company’s financial statements

Answer 21

Auditors

Question 22

Licensed individuals who can represent that the financial statements have been audited in accordance with generally accepted auditing standards

Answer 22

Certified Public Accountants (CPA)

Question 23

A list of rules for choosing the appropriate accounting treatment for a transaction

Answer 23

Rules-based accounting standards

Question 24

Approach to standard setting stresses professional judgment, as opposed to following a list of rules

Answer 24

Objectives-oriented/principles-based accounting standards

Question 25

A code or moral system that provides criteria for evaluating right and wrong

Answer 25

Ethics

Question 26

Primary national organization of accountants working in industry and government

Answer 26

Institute of Management Accountants (IMA)

Question 27

National organization of accountants providing internal auditing services for their own organizations

Answer 27

Institute of Internal Auditors

Question 28

The quality of being useful to decision making

Answer 28

Decision Usefulness

Question 29

One of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feed-back value and timeliness

Answer 29

Relevance

Question 30

Exists when there is agreement between a measure or description and the phenomenon it purports to represent

Answer 30

Faithful Representation

Question 31

Confirmation of investor expectations about future cash-generating ability

Answer 31

Predictive value/confirmatory value

Question 32

If a more cost effective way of providing information is not expected to have a material effect on decisions made by those using the information , the less costly method may be acceptable

Answer 32

Materiality

Question 33

Neutral with respect to parties potentially affected

Answer 33

Neutrality

Question 34

Practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered

Answer 34

Conservatism

Question 35

The ability to help users see similarities and differences among events and conditions

Answer 35

Comparability

Question 36

Permits valid comparisons between different periods

Answer 36

Consistency

Question 37

Implies consensus among different measures

Answer 37

Verifiability

Question 38

Information that is available to users early enough to allow its use in the decision process

Answer 38

Timeliness

Question 39

Users must understand the information within the context of the decision being made

Answer 39

Understandability

Question 40

The perceived benefit of increased decision usefulness exceeds the anticipated cost of providing the information

Answer 40

Cost Effectiveness

Question 41

In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely

Answer 41

Going Concern Assumption

Question 42

Allows the life of a company to be divided into artificial time periods to provide timely information

Answer 42

Periodicity Accounts

Question 43

The annual time period used to report to external users

Answer 43

Fiscal Year

Question 44

Process of admitting information into the basic financial statements

Answer 44

Recognition

Question 45

Process of associating numerical amounts to the elements

Answer 45

Measurement

Question 46

Additionally insights about company operations, , accounting principles, contractual agreements, and pending litigation

Answer 46

Disclosure Notes

Question 47

Requires that the earnings process is judged to be complete or virtually complete, and there is reasonable certainty as to be collectability of the asset to be received (usually cash) before revenue can be recognized

Answer 47

Realization Principle

Question 48

The goods or services sold to the buyer are delivered (the title is transferred)

Answer 48

Point-of-Sale

Question 49

Expenses are recognized in the same period as the related revenues

Answer 49

Matching Principle

Question 50

Supplemental information disclosed on the face of financial statements

Answer 50

Parenthetical/ modifying comments

Question 51

Reports containing more detailed information than is shown in the primary financial statements

Answer 51

Supplemental Financial Statements