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Intermediate Accounting I > Chapter One > Flashcards

Chapter One Flashcards

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1
Q

Cash Basis Accounting

A

measurement of cash receipts and cash payments from transactions (related to providing goods and services)

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2
Q

accrual basis accounting

A

measurement of revenues and expenses, regardless of when cash is received or paid

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3
Q

Accrued basis of accounting relates to ___

A

net income or net loss

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4
Q

cash basis of accounting relates to _____

A

net operating cash flow

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5
Q

GAAP

A

Generally Accepted Accounting Principles: broad and specific guidelines; companies should follow when measuring and reporting info in financial statements and related notes

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6
Q

GAAP is related to the development of

A

Financial Accounting and reporting standards

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7
Q

GAAP facilitates decisions made by who? and what are they comapring?

A

decision making by investors and creditors by allowing them to compare financial information among companies

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8
Q

hierarchy of standard setting authority

A

Congress –> SEC –> private sector (CAP –> APB –> FASB)

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9
Q

CAP

A

1938-1959

Committee on Accoutning Procedure

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10
Q

APB

A

1959-1973

Accounting Principles Board

failed because of lack of independence which is what led to FASB

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11
Q

FASB

What is FASB responbile for?

A

1973-present

nongovernment/private

responsible for developing/improving GAAP

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12
Q

SEC

A

securities and exchange commission:

who created: by Congress

why: in response to stock market crash of 1929

goal: restore investor confidence

what they do: responsible for setting ACTG standards for **publicly traded companies **

what kind of authority: statutory authority

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13
Q

1933 Securities Act

A

applies to initial offerings of securities (stocks and bonds)

purpose: restore confidence in investors

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14
Q

1934 Securities Exchange Act

A

applies to secondary market transactions; mandates reporting requirements for companies whose securities are publicly traded

purpose: restore confidence in investors

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15
Q

more details about FASB

Who establishes it?
members of what organization support it?
how many m

A

established by US accounting standards (GAAP); supported by Financial Accounting Foundation (FAF); seven full time members

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16
Q

EITF

Are they considered part of GAAP?

A

Emerging Issues Task Force; created in 1984; identifies financial reporting issues and attempts to resolve them without involving the FASB; addresses implementation issues; speeding up the standard setting process; EITF rulings are ratified by the FASB and are considered part of GAAP

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17
Q

GASB

A

Government Accounting Standards Board: develops accounting standards for governmental units such as states and cities

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18
Q

FASB Accounting Standards Codification

Only source of _____

A

only source of authoritative nongovernmental US GAAP: also includes portions of SEC accounting guidance

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19
Q

ASU

A

Accounting Standards Update: any new standard issued by FASB

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20
Q

IASC

A

International Accounting Standards Committee: formed in 1973 to develop global accounting standards

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21
Q

IASB

A

created by IASC: International Accounting Standards Board (2001)

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22
Q

role of IASB

What does IASB endorse?

A

to develop a single set of high quality, understandable, and enforceable global acct standards; endorsed 41 International Acct Standards (IASs)

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23
Q

what new standards were issued by IASB

A

IFRS - International Financial Reporting Standards

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24
Q

Sarbanes-Oxley Act

A

increased the pressure on lawmakers to pass measures that would restore credibility and investor confidence in the financial reporting

created because of acct scandals with Enron and Arthur Andersen

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25
principles based vs rules based
follows objectives-oriented (stresses professional judgement)
26
Conceptual Framework
Accounting Constitution objectives elements FS qualitative characteristics recognition and measurement concepts constraints
27
Conceptual framework is disseminated by FASB through _____
Statments of Financial Accoutning Concepts (SFACs)
28
hierarchy of QC
decision usefulness --> relevance and faithful representation decision usefulness --> comparability/consistency, verifiability, timeliness, understandability
29
comparability/consistency
ability to helps users see similarities and differences measure and reported the same way in each time period comparability: important for making interfirm comparisons consistency: applying same acct practices over time
30
verifiability
implies a consensus (general agreement) among different measures
31
timeliness
info that is available to users **early enough** to allow its use in the decision process
32
understandability
users must understand the info within the context of the decision being made
33
key constraint
cost effectiveness: perceived benefit of increased decision usefulness exceeds the anticipated cost of providing that info
34
relevance
one of the primary decision-specific qualities that make accounting info useful predictive value confirmatory value materiality "pertinent to the decision at hand"
35
predictive value
falls under relevance for QC confirmation of investor expectations about future cash generating ability helps users predict a company's future cash flows
36
confirmatory value
confirmation of investor expectations about future cash generating ability confirm or change prior assessments regarding a company's cash flow generating ability "info confirms expectations"
37
materiality
falls under relevance of QC has qualititave or quantitative characteristics that make it matter for decision making concerns the relative size of an item and its effect on decisions
38
faithful representation
exist when there is agreement between a measure or description and the phenomena it purports to represent completness neutrality free from error
39
completeness
falls under FR in QC depiction is complete if it includes all info necessary for faithful representation
40
neturality
under FR of QC implies freedom from bias
41
free from error
falls under FR of QC info contains no errors or omissions
42
elements of FS
assets liabilities equity (net assets) investments by owners distribution to owners (dividends) comprehensive income revenues expenses gains losses
43
assets
probable future economic benefits obtained as a result of past transactions
44
liabilities
probable future sacrifices of econ benefits arising from obligations of a particular entity to transfer assets/provide services (result of present or future transactions)
45
equity (net assets)
stockholder's equity - residual interest in the assets of an entity that remain after deducting liabilities (net worth of business)
46
investments by owners
increases in equity of a particular business enterprise resulting transfer to it from other entities of something of value to obtain ownership interests in it (purchasing shares of stock, would not be securities because not a direct contribution to capital)
47
distribution to owners
dividends decreases in equity resulting from transfers to owners
48
comprehensive income
NI + OCI change in equity of a business enterprise during a period from transactions and other events and circumstances from non owner sources all change in equity during period expect those resulting from investments by owners and distributions to owners OCI - gain/loss on foreign exchange translation (adjustments), pension adjustments, unrealized profit/loss, revaluation surplus, AFS
49
revenues
revenue recognition principle inflows of assets or settlements of liabilities resulting from providing a product or service to a customer rent, sale, service
50
expenses
outflows or other using up of assets or incurrences of liabilities from delivering g/s
51
gains
increases in equity from peripheral or incidental transactions
52
losses
represent decreases in equity arising from peripheral or incidental transactions
53
four basic assumptions underlying GAAP
economic entity going concern periodicity monetary unit
54
economic entity
presumes that econ events can be identified specifically with an econ entity
55
going concern
anticipates that a business entity will continue to operate indefinitely
56
periodicity
allows life of a company to be divided into artificial time periods to provide timely information
57
monetary unit
in US FS is the US dollar
58
recognition, measurement, and disclosure concepts
recognition - process of admitting info into FS (there is general recognition criteria) Usually referring to revenue and expense recognition principle measurement - process of associating numerical amounts with the elements disclosure - process of including additional pertinent info in the FS and accompanying notes
59
general recognition critera
definition, measurability, relevance, reliability
60
expense recognition
four approaches: exact cause and effect relationship example: COGS by associating an expense with the revenues recognized in a specific time period: example: salaries expense by a systematic and rational allocation to specific time periods example: depreciation expense in the period incurred, without regard to related revenue example: adv expense
61
GAAP currently employs a ______ measurement model
"mixed attribute" 1) historical cost 2) net realizable value 3) current cost 4) present value 5) fair value
62
historical cost
GAAP measurement original transaction value adjusted for depreciation and amortization example: land
63
net realizable value
GAAP measurement Selling price less costs of completion, disposal, and/or transportation. example: AR after uncollectible
64
current cost
GAAP measurement the cost that would be incurred to purchase or reproduce the asset problem: appraisal
65
present value
GAAP measurement the current value of future cash flows, calculated by applying the time value of money example: liability at present value of future cash payments KNOW PV and FV formulas!
66
fair value
GAAP measurement the price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date example: investment at FV
67
market approach for FV
valuation based on mkt info
68
income approach for FV
Estimates future amounts and then mathematically converts those amounts to a single present value.
69
cost approach for FV | example in class for land
Estimates the amount that would be required to buy or construct an asset of similar quality and condition
70
fair value optional in reporting
GAAP gives a company the option to choose whether to report specified financial assets and liabilities at fair value reduces volatility (unpredictability) in reported earnings without having to comply to complex standards usually helps with international acct standards
71
full disclosure principle
requires that the financial reports should include any information that could affect the decisions made by external users parenthetical/modifying comments (face of FS) disclosure notes (convey add insights) supplemental schedules/tables (primary FS)
72
purpose of Financial accounting
to enable users (internal or external) make decisions
73
primary users
creditors (lenders) and investors (stockholders)

Intermediate Accounting I (15 decks)

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