Chapter 1

Question 0

Functions of accounting

Answer 0

Transaction processing
Decision support
Governmental reporting

Question 1

Purpose of financial accounting

Answer 1

To provide relevant information to external users

Specifically profits oriented companies to investors and creditors

Question 2

Gains

Answer 2

Increases in equity

Question 3

Losses

Answer 3

Decreases in equity

Question 4

Purpose of comprehensive income

Answer 4

To report other changes in shareholders equity during the period that were not the result of transactions with owners.

Question 5

Capital markets

Answer 5

Composite of all investors and creditors and fosters the efficient allocation of resources.

Question 6

Cash basis accounting

Answer 6

Revenue is recognized when cash is received.

Expenses are recognized when cash is paid.

Question 7

Accrual accounting

Answer 7

Revenue is recognized when earned

Expenses are recognized when incurred.

Question 8

GAAP Generally accepted accounting principles

Answer 8

Concepts, principles and procedures developed to meet the needs of external users.

Question 9

How was sec created

Answer 9

As a result of the stock market crash of 1929, congress passed SEC

Question 10

Hierarchy of standard setting authority

Answer 10

Congress sec private sector and FASB

Question 11

SEC

Answer 11

Created to develop and standrdize financial information presented to stockholders

Must follow rules of GAAP

Question 12

FASB

Answer 12

Sets out to improve corporate accounting practices by enhancing guidelines set out for accounting reports. Identifying and resolving issues in a timely manner and creating a uniform standard across the financial markets.

Question 13

CAP committee on Accounting procedures

Answer 13

The first of the private sector to establish accounting standards

Question 14

APB

Answer 14

Replaced CAP but was never able to create a conceptual framework

Question 15

EITF

Answer 15

Attempts to identify financial reporting issues and solve the problems without the help of GAAP

Question 16

Due process

Answer 16

1. Board reviews recommendations and requests
2. FASB decides rather to add the project to the agenda.
3. The board deliberates at one or more political meeting
4. Board issued an exposure draft
5. Board holds a public round table
6. Staff analysis letters and discussions
7. The board issues an update explaining amendments to the accounting standards codification

Question 17

Fundamental qualitative characteristics

Answer 17

Relevance and faithful representation

Question 18

Relevance

Answer 18

One of the primary decision-specific qualities that make accounting information useful made up of predictive value and feedback value and timeliness

Question 19

Faithful representation

Answer 19

Agreement between a measure and the phenomenon it purports to represent

Question 20

Assumptions

Answer 20

Economic entity
Going concern
The periodicity
Monetary unit

Question 21

Economic entity

Answer 21

All economic events can be identified specifically

Question 22

Going concern

Answer 22

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

Question 23

Periodicity

Answer 23

Allows the life of the company to be so divided into artifices time periods to provide timely information

Question 24

Monetary

Answer 24

Measurement scale used in financial statements

Question 25

Realization principle: REVENUE

Answer 25

Revenue should be recognized when the earnings process is virtually complete and collection is reasonable assured

Question 26

Matching principle: EXPENSE

Answer 26

Expenses should be recognized in the period in which they produce revenues

Question 27

Measurement

Answer 27

``` Historical cost Bet realizable value Current cost Present or discounted value of future cash flows Fair value ```

Question 28

Historical cost

Answer 28

Measures assets and liabilities based on their original transaction

Question 29

Net realizable value

Answer 29

The amount of cash into which an asset is expected to be converted in the ordinary course of business

Question 30

Current cost

Answer 30

Some inventories are reported at their current replacement cost

Question 31

Present value

Answer 31

Based measurement on future cash flows discounted for the time value of money

Question 32

Fair value

Answer 32

Bases measurement on the price that would be received to sell assets or transfer liabilities in an orderly market transaction

Question 33

Full disclosure principle

Answer 33

The financial reports should include any information that could affect the decisions made by external users