Financial Reporting Flashcards Preview

FAR > Financial Reporting > Flashcards

Flashcards in Financial Reporting Deck (55)
Loading flashcards...
1

What is the primary objective of accounting?

To measure income

2

What is the most authoritative set of accounting pronouncements?

The FASB Codification

All pronouncements fall under the Codification umbrella

3

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

Authoritative and Non-Authoritative

4

How does managerial accounting differ from financial accounting?

Managerial Accounting has a “timeliness” focus

Managerial Accounting is not required to follow GAAP

5

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

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

6

What is the focus of financial reports for individual companies?

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

Does not make assessments of the economy

7

What are the Primary Constraints of Financial Reporting?

Cost vs. Benefit

Materiality

8

What are the Secondary Constraints of Financial Reporting?

Consistency - Year vs. Year

Comparability - Company vs. Company

9

What are the Enhancing Qualitative Characteristics of Financial Reporting?

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

10

How does Conservatism affect the recording of accounting transactions?

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

11

What is an accrual?

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

12

What is a deferral?

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

13

What is recognition in accounting?

When an item is recorded and included in the financial statements

14

Describe fair value with respect to an asset

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

15

What market assumptions are made in a fair value assessment?

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

16

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

Price quotes or market prices

For example NYSE or NASDAQ

17

What items are included in a Level 2 valuation input?

Interest rates

Prime rate

18

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

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

19

What are acceptable valuation techniques for fair value?

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

20

What are current assets?

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

21

What are current liabilities?

Liabilities that will use current assets during the present operating cycle

22

What is an accrued liability?

Expense that has been incurred but not paid

Example: rents payable

23

What is a deferred revenue?

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

24

When are revenues recognized?

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

25

What is a gain?

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

26

What is a loss?

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

27

What is an operating cycle?

Average time it takes to turn materials or services into Cash

28

What is the present value of future cash flows?

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

29

What is historical cost?

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

30

What is replacement cost?

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