Financial Reporting

Question 1

Primary objective of accounting is..

Answer 1

Measure income

Income measures a firm’s efficiency

Question 2

What is the basis of all economic activity?

Answer 2

Monetary Units

Question 3

What is the most authoritative set of accounting pronouncements?

Answer 3

FASB codification

Question 4

What are the two levels of the FASB codification? (two levels of GAAP)

Answer 4

Authoritative and Non-authoritative

Question 5

Managerial accounting = what type of focus?

Answer 5

Timeliness

Question 6

Does managerial accounting follow GAAP?

Answer 6

No.

They focus more on making future projections for the company.

Question 7

Financial reports are used for…

Answer 7

Providing financial information that is useful to existing and potential investors, lenders. and creditors

Question 8

Financial Reports are filed with the..

Answer 8

SEC

Question 9

What two reports are filed with the SEC

Answer 9

10k (Annual and audited)

10Q (Quarterly and Reviewed)

Question 10

What are the two primary constraints of financial reporting?

Answer 10

Cost vs. Benefit , Materiality

Question 11

What are the two secondary constraints of Financial reporting?

Answer 11

Consistency - Year vs Year

Comparability - Company vs Company

Question 12

What are the two qualitative characteristics of Financial reporting?

Answer 12

Relevance and Faithful Representation

Question 13

Relevance

Answer 13

Makes a difference to the USER

Question 14

What are the three components of relevance

Answer 14

Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect user decisions

Question 15

Faithful Representation contains which three components

Answer 15

Completeness
Neutrality
Freedom from error

Question 16

Completeness

Answer 16

Nothing omitted that would impact the decision-making of a user

Question 17

Neutrality

Answer 17

Information presented is without bias

Question 18

Freedom from Error

Answer 18

No material errors or omissions

Question 19

What are the 4 Enhancing Qualitative Characteristics

Answer 19

Comparability
Verifiability
Timeliness
Understandability

Question 20

Comparability

Answer 20

Allows users to compare different items among various periods

Question 21

Verifiability

Answer 21

Different people would reach a similar conclusion on the information presented

Question 22

Timeliness

Answer 22

Information is made available early enough to impact the decision making of users

Question 23

Understandability

Answer 23

Information is easy to understand for users of financial reports

Question 24

Accrual is

Answer 24

Earned Revenue or Incurred Expense but NO CASH receipt/outlay yet

Question 25

Revenue example of an Accrual

Answer 25

Sell an item on credit

Question 26

Expense example of an Accrual

Answer 26

Monthly rent expense for December not paid until January

Question 27

Deferral is

Answer 27

refers to an amount that was paid or received, but the amount cannot be reported on the current income statement since it will be an expense or revenue of a future accounting period.

Question 28

Revenue example of Deferral

Answer 28

Customer pre-pays for an repair done to their car (liability)

Question 29

Expense example of Deferral

Answer 29

Company pre-pays insurance premiums and is amortized (Asset)

Question 30

Amortization is

Answer 30

Amortization is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific useful life. Examples of intangible assets are patents, copyrights, taxi licenses, and trademarks. The concept also applies to such items as the discount on notes receivable and deferred charges.

Question 31

Recognition definition..

Answer 31

When an item is recorded and included in the financial statements

Question 32

Conservatism definition..

Answer 32

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

Question 33

Fair Value is..

Answer 33

The price you would receive if you sold the asset | -Assumes asset is at its highest and best value

Question 34

Market assumes with fair value...

Answer 34

Asset is sold in its most advantageous market to get the best price possible Buyer and seller are NOT related Buyer and seller are knowledgeable Buyer and seller are able to transact Buyer actually has money to spend Buyer and sell are motivated to Buy/Sell

Question 35

Fair Value Hierarchy Level 1 - Top Level

Answer 35

Uses Price quotes or market prices | -NYSE or NASDAQ

Question 36

Fair Value Hierarchy Level 2 - Mid Level

Answer 36

Interest Rates | - Prime Rate

Question 37

Fair Value Hierarchy Level 3 - Lowest Level

Answer 37

Un-observable | Uses assumptions or forecasts

Question 38

What are the 3 valuation Techniques?

Answer 38

Market Approach Income Approach Cost Approach

Question 39

Market Approach is..

Answer 39

Market transactions/prices value the asset

Question 40

Income Approach is..

Answer 40

present value discounts earnings

Question 41

Cost Approach is..

Answer 41

Replacement cost- values the asset

Question 42

Current Assets include..

Answer 42

Cash, Inventory or assets expected to be converted or consumed during a business operating cycle, receivables expected to be collected < 12 months

Question 43

Current Liabilities will use...

Answer 43

Current assets during the present operating cycle

Question 44

What is the difference between accrued liability and current liability ?

Answer 44

Accrued Liability - Expense that has been incurred but NOT PAID- Rent payable Current Liability - Payments that have been received but cannot be recorded as revenue yet

Question 45

Revenue FASB ASC 606

Answer 45

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