Accrual Accounting

Question 1

What body developed generally accepted accounting principles (GAAP)?

Answer 1

The Financial Accounting Standards Board (FASB)

Question 2

What is the Accounting Principles Board?

Answer 2

The entity that published 31 opinions, some of which are now part of the Codification.

Question 3

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 3

The classification is current assets.

Question 4

What are the seven key components of the general‐purpose external financial report?

Answer 4

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 5

What does generally accepted accounting principles (GAAP) address?

Answer 5

Recognition, measurement, and disclosure

Question 6

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

Answer 6

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

Question 7

When is revenue recognized under accrual accounting?

Answer 7

Revenues are recognized when earned and collection is reasonably assured, regardless of the period of cash collection.

Question 8

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

Answer 8

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 9

Which agency enforces generally accepted accounting principles (GAAP)?

Answer 9

The Securities and Exchange Commission (SEC).

Question 10

When are expenses recognized under accrual accounting?

Answer 10

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

Question 11

What are long‐term assets?

Answer 11

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.