Financial Reporting - General Purpose For Profit - Fundamentals/Conceptual Framework Accounting

Question 1

How does the Accounting Universe start and end (in order)?

Answer 1

Accounting Principles (Ex: Conservatism)
Accounting Standards (GAAP/IFRS)
Accounting Books
Financial Statements

Question 2

What are the accounting principles?

Answer 2

Accrual/Matching
Monetary
Periodicity
Consistency
Conservative (prudence)
Going Concern

Question 3

What are the accounting standards?

Answer 3

Rules and guidelines set by regulatory bodies standardize the way financial transactions are recorded and reported.

Question 4

What are the two kinds of accounting standards?

Answer 4

U.S. GAAP

International Financial Reporting Standards (IFRS)

Question 5

What are the accounting books?

Answer 5

Journal, ledgers, trial balance

Question 6

How do the accounting books flow to the financial statements (in order)?

Answer 6

Journals
Ledgers
Unadjusted Trial Balance
Adjusted Trial Balance
Financial Statements

Question 7

What is the accrual/matching principle?

Answer 7

Recognize revenue and expenses as they are incurred (happen), not when they are paid out, and match them to each other within that incurred period.

Question 8

What is the monetary principle?

Answer 8

All financial transactions on the financial statements must be of monetary value within a stable currency.

Question 9

What is the periodicity principle?

Answer 9

Financial statements must be broken down into interval periods (such as monthly, quarterly, and annual).

Question 10

What is the consistency principle?

Answer 10

Financial Statements must be presented consistently from period to period (for comparability reasons).

Question 11

What is the conservative (prudence) principle?

Answer 11

Expenses/losses should be recorded when estimated, while revenue/gains should be recorded when certain.

Question 12

What is the going concern principle?

Answer 12

A company will be in business for the foreseeable future and is not expecting to be liquidated within the near term.

Question 13

What are types of financial statements?

Answer 13

Balance sheet (statement of financial position), income statement (statement of earnings), statement of cash flows, statement of comprehensive income, statement of changes in equity (owners’ equity), and notes to the accounts (or financial statements).

Question 14

What is the accounting equation?

Answer 14

Assets = liabilities + equity

Question 15

How do you increase/decrease the following accounts: assets, liabilities & equity, revenue/gains, and expenses/losses?

Answer 15

Assets = debit increase/credit decrease

Liabilities/Equity = credit increase/debit decrease

Revenue/Gains = credit increase/debit decrease

Expenses/Losses = debit increase/credit increase

Question 16

What are the natural balances of the following accounts: assets, liabilities & equity, revenue/gains, and expenses/losses?

Answer 16

Asset = Debit

Liability/Equity = Credit

Revenue/Gains = Credit

Expenses/Losses = Debit

Question 17

What is the authoritative sources of GAAP?

Answer 17

Accounting standards codifications (AKA FASB accounting standards codifications)

Question 18

What is the non-authoritative sources of GAAP?

Answer 18

Statement of Financial Accounting Concepts, AICPA Audit Guides, AICPA Statement of Positions.

Question 19

Steps of the standard setting process?

Answer 19

Identify the issue, add it to the agenda, discuss the issue, engage in the research and analysis process, publish the exposure, deliberation, revise the draft, establish a standard, integrate it into the accounting standard codification, implement it with ongoing support, and conduct a post-implementation review.

Question 20

What are the two qualitative characteristics of useful financial information?

Answer 20

Fundamental and enhanced qualitative characteristics.

Question 21

What are the qualitative fundamental characteristics of useful financial information?

Answer 21

Faithful representation and relevance (relevant)

Question 22

List the enhancing qualitative characteristics?

Answer 22

Comparability, verifiability, timeliness, and understandability

Question 23

Explain what the enhancing qualitative characteristics do?

Answer 23

Enhance the usefulness of the information that is relevant and faithfully represented

Question 24

What does relevant (relevance) information do for users?

Answer 24

Helps users form predictions about past, present, and future events, along with confirming (confirmative value) or correcting prior expectations.

Question 25

What are the components of relevance (relevant)?

Answer 25

Predictive value and confirmatory value.

Question 26

What pronouncements are included in the Statement of Financial Accounting Standards (SFAS)?

Answer 26

FASB pronouncements like interpretations of accounting standards, technical bulletins, staff positions, staff implementations guides,

Question 27

What are technical bulletins?

Answer 27

Technical bulletins are issued to provide guidance on specific financial accounting and reporting problems (not to amend account standards updates)

Question 28

What are staff accounting bulletins (SAB)?

Answer 28

Provides a summary of views of the SEC commission's staff regarding the manner and application of GAAP (SAB bulletins are more restrictive than GAAP from their derived interpretation).

Question 29

What guidance is included in the FASB Accounting Standards Codification?

Answer 29

SEC content for reference by public companies only (source of authority for GAAP).

Question 30

What are the statements of financial accounting concepts intended establish?

Answer 30

Developing standards of financial accounting and reporting that will be the basis for future development of financial accounting and reporting standards. SFACs do not establish, amend, supersede, or modify accounting standards (meaning they do not convey the meaning of GAAP).

Question 31

The FASB conceptual framework addresses what concepts of capital?

Answer 31

Financial and Physical