Financial Reporting - Special Framework

Question 1

The change from a cash basis to an accrual basis is called what when reflected on the financial statements?

Answer 1

Correction of an error

Question 2

What is the correction of an error called in prior periods?

Answer 2

Prior period adjustment

Question 3

How does the current year AR get treated with collection fee revenue?

Answer 3

Added since it was incurred but not paid out

Question 4

How does prior years AR get treated with collection fee revenue?

Answer 4

Subtracted since it was incurred and paid out

Question 5

How does the current year’s unearned revenue get treated with collection fee revenue?

Answer 5

Subtracted since it was incurred but not earned yet.

Question 6

If prepaid expenses are higher at the end of the year compared to the beginning of the year, is this an increase or decrease in operating expenses?

Answer 6

Decrease

Question 7

If accrued liabilities are higher at the end of the year compared to the beginning of the year, is this an increase or decrease in operating expenses?

Answer 7

Increase

Question 8

How is income affected when AR increases and AP decreases when going from accrual to cash?

Answer 8

Income would be decreased for both.

Question 9

If a company maintains its accounting records on a cash basis but restates its financial statements to the accrual method, how would an increase in AR and a decrease in AP affect income?

Answer 9

Increase in AR increase in net income

Decrease in AP increase in net income

Question 10

When the cash basis is followed, the following statements are prepared?

Answer 10

Statement of Cash and Equity
Statements of Cash Receipts and Disbursements

Question 11

A special-purpose framework is considered what kind of framework?

Answer 11

Financial reporting framework.

Question 12

The Other Comprehensive Basis of Accounting (OCBOA) covers what bases of accounting?

Answer 12

Cash basis, tax basis, regulatory basis, and other bases of accounting.

Question 13

A special purpose framework uses what basis of accounting?

Answer 13

Modified cash basis

Question 14

What is OCBOA pure cash basis of accounting?

Answer 14

Recognizes revenues/expenses when paid out, no capitalization of LT assets (no dep/amort), no tax accruals or prepaid expenses.

Question 15

What is the modified cash basis of accounting?

Answer 15

Hybrid model where most transactions are recorded on a cash basis and certain transactions are recorded on accrual basis of accounting (like income taxes, depreciation, and accounts payables).

Question 16

What are the other comprehensive basis of accounting other than GAAP?

Answer 16

Basis of accounting to comply with regulatory requirements, tax purposes, cash basis, set of criteria having substantial support (price-level basis of accounting).

Question 17

Presentation of financial data is intended to communicate an entity’s economic resources or obligations on a specific date, what is the statement called?

Answer 17

Statement of financial condition

Question 18

If a cash basis taxpayer prepares its accrual basis and deferred income tax liabilities increased compared to previous years, what could cause this?

Answer 18

An increase in prepaid insurance

An increase in rent receivable

Question 19

What is the proper modified title for the balance sheet for the income tax basis?

Answer 19

Statement of assets, liabilities, and equity–income tax basis

Question 20

Financial statements prepared on the income tax basis, how should the nondeductible portion of expenses reported?

Answer 20

Included in the expense category of the determination if income.

Question 21

How do income tax basis financial statements differ from those prepared under GAAP?

Answer 21

Tax basis financial statements recognize certain revenues and expenses in different reporting periods than GAAP financial statements.

Question 22

Is detailed information about current and deferred income tax liabilities included in GAAP financial statements?

Answer 22

Yes, under ASC 740.

Question 23

What transaction disclosures can income tax-basis financial statements include?

Answer 23

Capital and operating lease transactions (typically less than what GAAP would disclose).

Question 24

When going from cash to accrual how is AR/AP treated when increased with net income?

Answer 24

AR added back to accrual income since it is not based on the cash basis amount.

AP gets subtracted from accrual income since it is not in the cash basis amount.

Question 25

When going from cash to accrual, how is AR and AP treated when decreased with net income?

Answer 25

AR subtracted from accrual income since it is not reflected in the cash amount. AP gets added back to accrual income since it is not reflected in the cash amount.

Question 26

Compared to accrual basis accounting, cash basis accounting understates income by the net decrease of what account?

Answer 26

Accrued expenses

Question 27

When transitioning from a cash to an accrual basis accounting with expenses, how are increases to prepaid expenses and accrued expenses treated?

Answer 27

Prepaid expenses are subtracted from expenses since they are already included in the cash amount (i.e., increased expenses). Accrued expenses are added to expenses since they are not included in the cash amount.

Question 28

When transitioning from a cash to an accrual basis accounting with expenses, how are decreases to prepaid expenses and accrued expenses treated?

Answer 28

Prepaid expenses are added to expenses since they only raise expenses in the accrual when expensed out. Accrued expenses are subtracted from the cash amount to get the accrual amount since they are already added to the expense amount accrual wise.

Question 29

What are the three modified cash basis of accounting financial statements called?

Answer 29

Balance Sheet - Modified Cash Basis Statement of Assets and Liabilities Arising from Cash Transactions Statement of Revenue Collected and Expenses Paid

Question 30

What does OCBOA stand for?

Answer 30

other comprehensive bases of accounting

Question 31

What financial statements are prepared when the cash basis is followed?

Answer 31

Statement of Cash and Equity Statements of Cash Receipts and Disbursements

Question 32

The Modified Cash Basis of accounting is a basis of accounting that presents Financial Statements in accordance with?

Answer 32

Special purpose framework

Question 33

When going from accrual to cash how is AR/AP treated when increased with net income?

Answer 33

AR is subtracted from the accrual amount to determine the cash amount. AP is added back the accrual amount to determine the cash amount.

Question 34

When going from accrual to cash how is AR/AP treated when decreased with net income?

Answer 34

AR is added back to the accrual amount to determine the cash amount AP is subtracted from the accrual amount to determine cash.

Question 35

When transitioning from accrual to cash basis accounting with expenses, how are decreases to prepaid expenses and accrued expenses treated?

Answer 35

Prepaid expenses would be subtracted from the accrual amount to determine the cash amount, as the amount has already been paid out within the accruals. Accrued liabilities would be subtracted from the accrual amount to determine the cash amount, as the amount has already been paid out within the accruals.

Question 36

When transitioning from accrual to cash basis accounting with expenses, how are increases to prepaid expenses and accrued expenses treated?

Answer 36

Prepaid expenses would be added to the accrual amount to determine the cash amount, as the amount has already been paid out within the accruals. Accrued liabilities would be added to the accrual amount to determine the cash amount, as the amount has already been paid out within the accruals.