Accounting Theories

Question 1

Statement of Financial Accounting Concepts No1.

Answer 1

Establishes and identifies three major objectives of general purpose external financial reporting.

Question 2

Statement of Financial Accounting Concepts No2.

Answer 2

Defines the characteristics which make accounting information useful.

Question 3

Relevance

Answer 3

Accounting information must be capable of making a difference in the decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct expectations reducing uncertainty about future events.

Question 4

Reliability

Answer 4

Investors, creditors and other users must be able to depend on accounting information to accurately represent the economic conditions or events that it purports to describe.

Question 5

Three Ingredients of Relevence

Answer 5

Predictive value
Feedback value
Timeliness

Question 6

Three Ingredients of Reliability

Answer 6

Verifiability
Representational faithfulness
Neutrality

Question 7

Comparability

Answer 7

Indicates that the information can be compared to other data in order to identify similarities and differences and allow users to make meaningful comparison between enterprises.

Question 8

Consistency

Answer 8

A goal of this concept is comparison of one company’s information from one period to the next.

Question 9

Cost/Benefit of Accounting Information

Answer 9

The cost/benefit pervasive constraint states that unless the benefit to be derived exceed the costs of providing that information, it should not be provided.

Question 10

Materiality

Answer 10

Is a consideration if it is probable that a person relying on certain information will be influenced in making investment or credit decisions by an error or omission.

Question 11

Asset

Answer 11

Probable future economic benefits obtained or controlled by a particular enterprise as a result of past transactions or events.

Question 12

Liabilities

Answer 12

Probable future sacrifices of economic benefits arising from present obligation of a particular enterprise to transfer assets or provide services to other enterprises in the future as a result of past transactions or events.

Question 13

Equity

Answer 13

Residual interest in the assets of an enterprise that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest.

Question 14

Investment by owners

Answer 14

Increases in net assets of a particular enterprise resulting from transfers to it from other enterprise of something of value to obtain or increase ownership interest (or equity) in it.

Question 15

Distributions to owner

Answer 15

Decrease in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners.

Question 16

Comprehensive Income

Answer 16

The change in equity (net assets) of an enterprise, during a period, from transactions and other events and circumstances from non owner sources.

Question 17

ACS 220 requires ________.

Answer 17

The disclosure of comprehensive income

Question 18

Revenue Recognition

Answer 18

Revenue is recognized when it is earned, measurable and collectible, that is when the income earning process is complete and an exchange has taken place.

Question 19

Matching

Answer 19

Dictates that efforts and expenses be matched with the revenue of the period.

Question 20

Unit of Measure

Answer 20

Comparability and understandability of financial information are enhanced if it is presented in terms of a common denominator.

Question 21

Separate Entity

Answer 21

Information is reported as if the business were separate from its owners, customers, employees, and creditors.

Question 22

Objectivity

Answer 22

Information should be free from bias on the part of the individual who prepared the information.

Question 23

Periodicity

Answer 23

Because of the need for timely information, accounting information is reported for set time intervals.

Question 24

ASC 825 requires _________.

Answer 24

All entities to disclose the fair value of many financial instrument.

Question 25

Fair Value Definition ASC 820

Answer 25

“Fair value is the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.”

Question 26

Government Accounting Standards Board (GASB)

Answer 26

Primary standards setter for state, local governments and all public not for profit entities.

Question 27

The International Accounting Standards Board (IASB)

Answer 27

Its purpose is to write International a Financial Reporting Standards (IFRS) which will establish an International GAAP.

Question 28

Securities and Exchange Commission (SEC)

Answer 28

It has oversight over public companies that are listed on a stock exchange.

Question 29

Financial Accounting Standards Board (FASB)

Answer 29

Primary standard setting body in the US today.