Chapter 2 lecture

Question 1

summarizing economic transactions in a way to creates useful information

Answer 1

accounting

Question 2

4 types of accounting

Answer 2

1. financial
2. management
3. audit
4. tax

Question 3

• external users (investors + creditors)
• transactions are for a business, generally a corporation

Answer 3

financial accounting

Question 4

what is the objective of financial reporting

Answer 4

• try to provide information to investors and creditors to make resource allocation decisions

Question 5

the process of determining the economic value of an asset, business, investment, or liability

Answer 5

valuation role

Question 6

the resposible management and ethical oversight of resources to ensure their effective use, sustainability, and preservation for future stakeholders

Answer 6

stewardship

Question 7

• government agencies
  SEC, IRS
• competitors
• auditors
• suppliers
• unions/employees

Answer 7

other external users of financial reporting

Question 8

• long term considerations (like IP)
• dividends plans- when will I get my money
• how many shares/how much of the business do I own
• control/voting rights

Answer 8

what additional information you would want to know you are investing in a business

Question 9

2 fundamental characteristics

Answer 9

1. relevance
2. faithful representation

Question 10

2 types of materiality

Answer 10

1. quantitative
2. qualitative

Question 11

big in size and dollar value

Answer 11

quantitative

Question 12

matter by nature

Answer 12

qualitative

Question 13

all necessary is depicted

Answer 13

completeness

Question 14

without bias in the presentation

Answer 14

neutrality

Question 15

financial information presented in a companys statements is accurate and contains no mistake or omissions

Answer 15

free form error

Question 16

costs to report information are justified by the benefits of reporting that information

Answer 16

cost constraint

Question 17

4 financial reporting assumptions

Answer 17

1. economic entity
2. going concern
3. monetary unit
4. periodicity

Question 18

entities are separate from their owners

Answer 18

economic entity

Question 19

the firm is expected to continue operating/ not go bankrupt

Answer 19

going concern

Question 20

time is cut into reportable units

Answer 20

periodicity

Question 21

4 accounting principles

Answer 21

1. revenue recognition
2. expense recognition
3. measurement principle
4. full disclosure

Question 22

method of calculating a businesses assets and liabilities based on their current market value

Answer 22

fair value

Question 23

fair value is related to relevance bc

Answer 23

capable of making a difference

Question 24

historical cost is related to faithful representation

Answer 24

less measurement uncertainty

Question 25

financial statements must include all relevant information needed to make informed investment and credit decisions

Answer 25

full disclosure

Question 26

notes that are provided with another item, such as a sound recording or a document

Answer 26

accompanying notes

Question 27

additional documents that provide information about an organizations financial health

Answer 27

supplementary schedules

Question 28

financial accounting =

Answer 28

debits and credits

Question 29

financial recording =

Answer 29

includes financial accounting but also things that dont fit in debits and credits

Question 30

the average length of the annual report of an FTSE 350 firm is how many pages

Answer 30

186 pages