04. Accrual Accounting

Question 1

What does generally accepted accounting

principles (GAAP) address?

Answer 1

Recognition, measurement, and disclosure

Question 2

What body developed generally accepted
accounting principles (GAAP)?

Answer 2

The Financial Accounting Standards Board (FASB)

Question 3

Which agency enforces generally accepted
accounting principles (GAAP)?

Answer 3

The Securities and Exchange Commission (SEC).

Question 4

When are expenses recognized under accrual

accounting?

Answer 4

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

Question 5

When is revenue recognized under accrual

accounting?

Answer 5

Revenues are recognized when earned and collection is

reasonably assured, regardless of the period of cash collection.

Question 6

What are the seven key components of the

general-purpose external financial report?

Answer 6

1. Income statement
2. Balance sheet
3. Statement of cash flows
4. Statement of retained earnings
5. Statement of comprehensive income
6. Footnote disclosures
7. Auditor’s opinion

Question 7

What is the classification of assets that are in the
form of cash, or will be converted into cash, or
will be consumed within one year or the
operating cycle of the business, whichever is
longer?

Answer 7

The classification is current assets.

Question 8

What is the Accounting Principles Board?

Answer 8

The entity that published 31 opinions, some of which are now

part of the Codification.

Question 9

What are long-term assets?

Answer 9

Assets that are not classified as current assets. Long-term assets
are reported on the balance sheet and represent a company’s
property, equipment, and other capital assets (reduced by
depreciation) expected to be usable for more than one year.

Question 10

What purpose does the Financial Accounting
Standards Board (FASB) Accounting Standards
Codification serve?

Answer 10

The FASB Accounting Standards Codification is the sole source of
authoritative U.S. generally accepted accounting principles for
nongovernmental entities, except for the Securities and
Exchange Commission guidance.

Question 11

What topics does the Financial Accounting
Standards Board (FASB) Accounting Standards
Codification not include?

Answer 11

Other comprehensive basis of accounting
Cash basis
Income tax basis
Regulatory accounting principles