Intermediate Accounting Exam 1

Provide information about the reporting entity that is useful to present and potential investors, lenders, and other creditors

Balance Sheet

The SEC. Securities and Exchanges Commission

Standards of accounting that are generally practiced and accepted for financial statements

American institute of CPAs, national professional organization establishing the accounting principles

Financial Accounting Standards Board; the wheat committee's creation to establish and improve standards of accounting

Goal is to provide all the authoritative literature related to a particular topic; one level of GAAP, considerably authoritative

Adopted to make it easier to compare Us and foreign companies, as US companies can raise capital in foreign markets

Relevance and Faithful representation

Accounting info must be capable of making a difference in a decision

Input to predict processes used by investors to form their own expectations about the future

Relevant info confirms or corrects prior expectations

Info is material if omitting it or misstating it could influence decisions

Numbers and descriptions match what really existed

All info that is necessary for faithful rep is provided

Company didn't select info to favor one set of interested parties over another

No errors, faithful rep

Measured and reported in the same manner

Independent measures, using same methods, obtain similar results

Info available to decision-makers before it loses capacity to influence decisions

Quality of info that lets reasonably informed users see its significance

Company keeps its activity separate from its owners and other businesses

Company to last long enough to fulfill objectives and commitments

Money is the common demominator

Company can divide economic activities into time periods

Historical Cost and Fair Value principles

Historical provides relative benchmark for measuring trends, fair value may be more useful

Companies recognize revenue in the accounting period that the obligation is satisifed

following revenue recognition

Providing info that is sufficient importance to influence the judgement and decisions on an informed user

Cost of providing info must be weighed against benefits derived from using it

Dividends, Revenues and expenses

Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.

Debit unearned revenue, and credit service revenue.

Journal entries, posting, trial balance, income statement, retained earnings, balance sheet

Real accounts, such as assets and liabilites

nominal accounts, closed at the end of accounting periods

the calculated value of building, machinery that is used over time

Accounts that decreased assets, such as accumulated depreciation, allowance for doubtful accounts, sales returns, sales discounts

Expenses paid in cash before they are used or consumed

Ex: insurance

Cash received before services are performed

Ex: Cover pay for lawyer

Revenues for services performed but not yet received in cash or recorded

Expenses incurred but not yet paid in cash or recorded

Face value of note x interest rate x time in terms of one year (1/12) = interest

Increases in equity from peripheral or incidental transactions

Sale of investment

Decreases in equity from peripheral or incidental transactions

Operation section, Nonoperating section, income tax, Discontinued operations, noncontrolling interest, Earnings Per share

All changes in equity during a period except those resulting from investments by owners and distributions to owners.

Net income - preferred stock dividends divided by weighted average # of shares