Accrual Accounting

Question 1

Key components of general-purpose external financial report

Answer 1

1. Income statement
2. Statement of comprehensive income
3. Statement of financial position
4. Statement of changes in owner’s equity
5. Statement of cash flows
6. Footnote disclosures and supplementary schedules
7. Auditor’s opinion

Question 2

GAAP

Answer 2

The composition of GAAP includes principles, methods, and procedures that are generally accepted by the accounting profession. The majority of GAAP includes the pronouncements issued by the Financial Accounting Standards Board (FASB) and its predecessors.

Question 3

Accounting Standards Codification

Answer 3

The compilation and organization of all GAAP sources. For publicly traded entities, the SEC has additional reporting guidelines.

Question 4

Accounting and financial reporting practices not included in the Codification are _________

Answer 4

Nonauthoritative

Question 5

The codification does not include guidance for non-GAAP matters including:

Answer 5

1. Other comprehensive basis of accounting
2. Cash basis
3. Income tax basis
4. Regulatory accounting principles

Question 6

If guidance for a transaction or event is not specified in the Codification, ___________

Answer 6

Authoritative GAAP for similar transactions or events should be considered before considering nonauthoritative GAAP.

Question 7

Sources of nonauthoritative guidance include:

Answer 7

1. Widely recognized and prevalent practices
2. FASB concept statements
3. AICPA issue papers
4. IFRS

Question 8

The guidance for similar transactions or events is not followed if that guidance either _____________

Answer 8

Prohibits the application of the guidance to the particular transaction or event, or indicates that the accounting treatment not be applied by analogy

Question 9

Authoritative GAAP includes _________

Answer 9

Relevant SEC rues and interpretative releases

Question 10

GAAP, and therefore the financial statements, reflects the ______ rather than the cash basis of accounting

Answer 10

Accrual basis of accounting

Question 11

Accrual basis provides a more comprehensive measurement of the change in the value of the firm resulting from income producing activities for a period because _________

Answer 11

It does not limit the recognition of resource changes to the cash flows for that period

Question 12

Accrual accounting much more fully reflects the ________

Answer 12

Economic substance of transactions

Question 13

Accrual basis accounting recognizes and reports the economic activities of the firm _______

Answer 13

In the period the activity was incurred, regardless of when the cash activity takes place.

Question 14

Economic transaction

Answer 14

One that generates revenue or expense

Question 15

When the economic event occurs

Answer 15

Create an accrual account

Question 16

When the cash activity occurs

Answer 16

Create a deferral account

Question 17

When the cash activity occurs

Answer 17

Create a deferral account

Question 18

Cash received before revenue earned

Answer 18

Deferred Revenue - Liability

Question 19

Deferred revenue

Answer 19

Rent, subscription, gift certificates

Question 20

Revenue earned before cash received

Answer 20

Accrued asset - asset

Question 21

Accrued asset

Answer 21

Sales on account, Interest, rent

Question 22

Cash paid before expense incurred

Answer 22

Prepaid expense - Asset

Question 23

Prepaid expense

Answer 23

Insurance, supplies, rent, PPE

Question 24

Expensed incurred before cash paid

Answer 24

Accrued expense - liability

Question 25

Converting Income statement from cash to accrual

Answer 25

change in cash = change in liability + change in equity - change in other assets

Question 26

Converting revenue or expense account from cash basis to accrual basis

Answer 26

Use T account