Accrual Accounting

Question 1

Why are financial statements considered “general purpose”?

Answer 1

-Because they’re designed to meet information needs of a broad class of users (primarily investors and creditors)

Question 2

What is the sole authoritative source for GAAP?

Answer 2

• The Codification

- SEC has additional reporting guidelines for public companies

Question 3

Is there a hierarchy of GAAP?

Answer 3

-No all carry same level of authority

Question 4

Does Codification include guidance for non-GAAP matters such as Cash Basis, Income Tax Basis, etc.?

Answer 4

-No

Question 5

What do US and international GAAP reflect?

Answer 5

-The accrual basis of accounting

Question 6

Why is the accrual basis preferred over the cash basis?

Answer 6

-Better association of revenues and expenses with appropriate accounting period