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Flashcards in Role and standard setting process Deck (24):
1

GAAP

The rule of financial reporting for business enterprises. GAAP are also called "accounting standards."

2

Financial Accounting Standards Board (FASB)

Currently the standard setting body in the United States.

3

GAAP may be described as:

The standards used in preparing financial statements.

4

SEC requires:

That all registrants provide financial statements that comply with GAAP and will sanction firms and individuals involved in financial reporting that does not comply with GAAP.

5

The FASB has maintained that:

New GAAP should be neutral and not favor any particular reporting objective. One of the objectives of the FASB in setting standards is to develop rules that are unbiased.

6

What is the operating procedure for issuing a new FASB statement?

At least four of the seven members of the FASB must vote in favor of a proposed Statement of Financial Accounting Standards.

7

When is revenue recognized under accrual accounting?

Revenues are recognized when earned and collection is reasonably assured, regardless of the period of cash collection.

8

What topics does the FASB Accounting Standards Codification not include?

Other comprehensive basis of accounting, cash basis, income tax basis, and regulatory accounting principles.

9

What does GAAP address?

Recognition, measurement and disclosure.

10

When are expenses recognized under accrual accounting?

Expenses are recognized when incurred, regardless of the period of cash payment.

11

Cash basis to accrual basis

Cash basis net income pretax + increase in A/R + decrease in A/P = accrual basis net income pre tax

12

General Rule to convert from cash to accrual

Add the beginning liability balances and subtract the ending liability balances; also, subtract beginning asset balances and add ending asset balances.

13

Cash received before revenue earned

Deferred revenue - Liability (Prepaid rent, subscriptions, gift certificates)

14

Revenue earned before cash received

Accrued revenue - asset (sales on account, interest receivable)

15

Cash paid before expense incurred

Deferred expense - asset (prepaid insurance)

16

Expense incurred before cash paid

Accrued expense - liability (Payable of: salaries, interest, taxes)

17

Assets are presented in order of

decreasing liquidity. Liquid assets are shown first and less liquid assets are shown last.

18

Liabilities are shown in order of

maturity. Current liabilities are presented first and then long term liabilities are presented.

19

Owners' equity items are shown

in order of permanence.

20

What presentation formats are there for the balance sheet?

Account format and report format. In the account format, the assets are shown on the left side of the page and the liabilities and owners equity are shown on the right side of the page. The report form, the three categories of accounts are listed from top to bottom with assets always shown first.

21

Changes and updates to the codification are accomplished through

Accounting Standards Updates

22

Cash Flows - Operating

Cash flows related to transactions that flow through the income statement.

23

Cash Flows - Investing

Cash flows related to the acquisition and disposal of long term assets an investments.

24

Cash Flows - Financing

Cash Flows related to the liabilities and owners equity sections of the balance sheet.