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95 Cards in this Set
- Front
- Back
GAAP is the term used to indicate the whole body of FASB authoritative literature.
true false |
true |
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Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
true false |
false |
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The primary governmental body that has influence over the FASB is the SEC.
true false |
true |
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The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.
true false |
false |
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The objective of financial statements emphasizes a stewardship approach for reporting financial information.
true false |
false |
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The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement, a statement of cash flows, and a statement of owners’ or stockholders’ equity.
true false |
false |
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Because they are generally shorter, FASB interpretations are subject to less due process, compared to FASB standards.
true false |
false |
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The objective of financial reporting uses an entity rather than a proprietary approach in determining what information to report.
true false |
true |
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GAAP stands for: |
generally accepted accounting principles.
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generally provides a better indication of an enterprise’s present and continuing ability to generate favorable cash flows? |
Accrual basis accounting |
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Accounting principles are "generally accepted" only when... ?
II. it has been accepted as appropriate because of its universal application. |
either or |
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promotes productivity.
encourages innovation.
provides an efficient market for buying and selling securities.
these are the results of an ...? |
An effective capital allocation process |
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The objective of general purpose financial reporting adopts an entity perspective, which means that |
companies are viewed as separate and distinct from their owners.
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the goal of this Codification was to provide one place where all authoritative literature about financial statement preparation could be found.
the purpose of this Codification is to create new GAAP.
this Codification changes the way GAAP is documented, presented, and updated. |
the FASB Codification |
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The objective of financial reporting identifies ______________ as the primary users for general-purpose financial statements. |
Investors and creditors.
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General-purpose financial statements are the product of |
financial accounting.
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Which of the following represents a form of communication through financial reporting but not through financial statements? |
President's letter. |
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The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization’s operations is called |
managerial accounting. |
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Companies that are listed on a stock exchange are required to submit their financial statements to the |
SEC.
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Qualitative characteristic being employed when companies in the same industry are using the same accounting principles. |
Comparability |
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Quality of information that confirms users’ earlier expectations. |
Confirmatory Value |
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Imperative for providing comparisons of a company from period to period. |
Consistency |
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Ignores the economic consequences of a standard or rule. |
Neutrality |
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Requires a high degree of consensus among individuals on a given measurement. |
Verifiability |
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Predictive value is an ingredient of this fundamental quality of information. |
Relevance |
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Four qualitative characteristics that are related to both relevance and faithful representation. |
Comparability, Verifiability, Timeliness, and Understability |
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An item is not recorded because its effect on income would not change a decision. |
Materiality |
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Neutrality is an ingredient of this fundamental quality of accounting information. |
Faithful Representation |
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Two fundamental qualities that make accounting information useful for decision-making purposes. |
Relevance and Faithful Representation |
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Issuance of interim reports is an example of what enhancing quality of relevance? |
Timeliness |
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Arises from peripheral or incidental transactions. |
Gains, Losses |
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Obligation to transfer resources arising from a past transaction. |
Liabilities |
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Increases ownership interest. |
Investments by Owners, Comprehensive Income |
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Declares and pays cash dividends to owners. |
Distributions to Owners |
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Increases in net assets in a period from nonowner sources. |
Comprehensive Income |
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Items characterized by service potential or future economic benefit. |
Assets |
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Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners. |
Comprehensive Income |
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Arises from income statement activities that constitute the entity’s ongoing major or central operations. |
Revenues, Expenses |
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Residual interest in the assets of the enterprise after deducting its liabilities. |
Equity |
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Increases assets during a period through sale of product. |
Revenues |
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Decreases assets during the period by purchasing the company’s own stock. |
Distributions to Owners |
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Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners. |
Comprehensive Income |
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Allocates expenses to revenues in the proper period. |
Expense Recognition Principle |
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Indicates that fair value changes subsequent to purchase are not recorded in the accounts. |
Measurement Principle (historical cost) |
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Ensures that all relevant financial information is reported. |
Full Disclosure Principle |
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Rationale why plant assets are not reported at liquidation value. |
Going Concern Assumption |
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Indicates that personal and business record keeping should be separately maintained. |
Economic Entity Assumption |
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Separates financial information into time periods for reporting purposes. |
Periodicity Assumption |
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Assumes that the dollar is the “measuring stick” used to report on financial performance. |
Monetary Unit Assumption |
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In the conceptual framework for financial reporting, what provides "the how" - the implementation of accounting? |
Measurement and recognition concepts such as assumptions, principles, and constraints. |
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The underlying theme of the conceptual framework is
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decision usefulness. |
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Enhancing qualities of accounting information include |
understandability.
comparability.
timeliness |
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Under current GAAP, inflation is ignored in accounting due to
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the monetary unit assumption. |
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Generally, revenues are recognized when the: |
performance obligation is satisfied. |
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It allows the profession to quickly solve new and emerging issues.
It enables standard setters to issue more useful and consistent pronouncements over time.
It increases financial statement users’ understanding of and confidence in financial reporting.
These are reasons for why a ... |
A conceptual framework is necessary |
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Which of the following is a fundamental quality of useful accounting information? |
Relevance
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Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information? |
Timeliness. |
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3 basic elements of financial statements? |
Assets.
Balance sheet.
Revenue. |
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What accounting concept justifies the usage of depreciation and amortization policies? |
Going concern assumption |
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Owner Invested $12,990 cash and $2,780 of equipment in the business.
record transaction... |
db - cash 12,990 db - equip 2780 cr - owners capital 15770 |
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Purchased supplies on account for $520. (Debit asset account.)
record transaction... |
db - supplies 520 cr - ap 520 |
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Performed services for clients, for which $1,300 was collected in cash and $620 was billed to the clients.
record transaction... |
db - cash 1300 db - ar 620 cr- service rev 1920 |
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Paid August rent $470.
record transaction... |
db - rent exp 470 cr - cash 470 |
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Counted supplies and determined that only $260 of the supplies purchased on August 7 are still on hand.
record transaction... |
db - supplies exp 260 cr - supplies |
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Interest on notes payable of $500 is accrued.
record transaction... |
db - interest exp 500 cr - interst payable 500 |
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Services performed but unbilled total $1,470.
record transaction... |
db - ar 1470 cr - services rev 1470 |
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Salaries and wages earned by employees of $570 have not been recorded.
record transaction... |
db - salaries and wages exp 570 cr - salaries and wages payable 570 |
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Bad debt expense for year is $860.
record transaction... |
db - bad debt exp 860 cr - allow for doubtful 860 |
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Prepare the year-end closing entries.
close revenue accts...
Sales Revenue $856,010 Interest Revenue $17,620 |
db - sales rev 856,010 db - int rev 17,620 cr - income summ 873,630 |
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Prepare the year-end closing entries.
close exp accts...
Cost of Goods Sold $567,260 Administrative Expenses $187,360 Income Tax Expense $36,960 |
db - income summ 791,580 cr - cogs 567,260 cr - admin exps 187,360 cr - income tax exp 36,960
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Prepare the year-end closing entries.
close income/loss...
income (diff btwn rev and exps) $82,050
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db - income summ 82,050 cr - retained earnings 82,050 |
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Prepare the year-end closing entries...
close dividends...
Dividends $18,736
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db - retained earnings 18,736 cr - dividends 18,736 |
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adjusting entry: accrued salaries...
Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive $860 each per week, and three employees earn $600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
5 x $860 x 2/5 = $1720 3 x $600 x 2/5 = 720 = $2440 |
db - salaies and wages exp 2440 cr - salaries and wages payable 2440 |
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adjusting entry: rent recognized...
Unearned Rent Revenue $464,640. The company began subleasing office space in its new building on November 1. Each tenant is required to make a $5,520 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.
5 x $6720 x 2 = $67,200 4 x $8890 x 1 = 35,560 = $102,760
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db - unearned rent rev 102,760 cr - rent rev 102,760 |
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adjusting entry: advertising exp...
Prepaid Advertising $14,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown below.
A - $300/mo x 8 mos = $2400 B - $442/mo x 3 mos = 1326 = $3726
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db - advertising exp 3726 cr - prepaid advertsing 3726 |
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adjusting entry: interest payable...
Notes Payable $60,700. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.
$60,700 x 12% x 7/12 = $4,249
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db - interest exp 4249 cr - interest payable 4249 |
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balance sheet equation ( accounting equation) |
assets = liabilities + equities |
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assest = ___ + ____ |
current assets + property, plant and equipment |
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current assets - name 3 accounts |
cash supplies prepaid ins |
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property, plant and equipment - name 3 accounts |
land equipment accum dep equip |
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liabilities and stockholders equity = ___ + ____ + ___ |
current liab + long term liabs + stockholders equity |
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liabilities = ___ + ____ |
current liabilities and long term liabilites |
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current liabilities (5) |
ap unearned service revenue notes payable interest payable property tax payable |
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a long term liability |
mortgage apayble |
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stockholders equity (2) |
common stock retained earnings |
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The dual effect of each transaction is recorded with a debit and a credit is what? |
The double-entry accounting system |
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When a corporation pays a note payable and interest they will debit what 2 accts? |
notes payable and interest expense. |
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The accounting equation must remain in balance throughout each ? |
step in the accounting cycle. |
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what chronologically lists transactions and other events, expressed in terms of debits and credits? |
A general journal |
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A journal entry to record a payment on account will include a debit to what acct? |
Accounts Payable.
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Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.
this is an example of ...? |
an accrued expense |
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The failure to properly record an adjusting entry to accrue an expense will result in an understatement of what 2 acct types? |
expenses and liabilities |
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At the time a company prepays a cost it debits what acct and why? |
an asset account - to show the service or benefit it will receive in the future. |
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The proper sequence of financial statement preparation is: |
The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows. |
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The worksheet for Sharko Co. consisted of five pairs of debit and credit columns. The dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. That item is |
net loss for the period. |