ACCTg 471 Quiz 1 Flashcards
Hierarchy of Accounting Standard Setting
Congress -> SEC -> Private Sector (FASB)
What are all the past and present private sector standard setting organizations?
CAP (Committee on Accounting Procedure)
APB (Accounting Principles Board)
FASB (Financial Accounting Standards Board)
Qualitative Characteristics of Conceptual Framework
Decision Usefulness->
Relevance and Faithfulness
Characteristics of Relevance
confirmatory value, predictory value, materiality
Characteristics of Faithfulness
completeness, neutrality, free from error
Enhancing Characteristics of Decision Usefulness
comprability, verifiability, timeliness, understandability
Revenue Recognition
businesses recognize revenue when it’s earned (accrual accounting)
Expense Recognition
companies recognize expenses at the same time as matching revenues
5 Measurement Attributes of GAAP
- Historical Cost
- Net Realizable Value
- Current Cost
- Present Value of Future Cash Flows
- Fair Value
Fair Value Hierarchy
Most Desirable: quoted market price for identical assets
Second Most Desirable: quoted price for similar asset
Third Most Desirable: entity assumes market price because there is no observable similar asset
Constraints on Financial Reporting
cost of gathering, processing, and disseminating
information and proprietary cost
What is the Sarbanes Oxley Act?
act that improved credibility, accounting standards, and confidence in public markets
What are the provisions of SOX?
Oversight board
Corporate executive accountability
Nonaudit services
Retention of work papers
Conflicts of interest
Hiring of an auditor
Internal controls
What is Cash Basis Accounting?
Revenue is recognized when
cash is received.
Expenses are recognized when
cash is paid
What is Accrual Basis Accounting?
Revenue is recognized
when earned.
Expenses are recognized
when incurred
What is a 10-K?
yearly analysis of company
filed within 60 days
What is a 10-Q?
Unaudited quarterly report updating the 10-K
filed within 40 days
What is a 20-F?
Filed by foreign companies with shares in US companies
filed within 6 months
What is a 8-K?
Report filed announcing events investors should know
about
filed within 4 days
What is the main message of the parable of the Ox?
we need standardized accounting because when information is provided to us, we come up with different answers which causes accounting discrepancies
External Events
Involve an exchange transaction with another entity
Internal Events
Do not involve an exchange transaction with another entity (depreciation)
What is step 1 of the accounting cycle?
Obtain information about transactions from source documents
What is step 2 of the accounting cycle?
process of reviewing the source documents to determine the dual effect on the accounting equation
What is step 3 of the accounting cycle?
Record the Transaction in a Journal
What is step 4 of the accounting cycle?
Post from the journal to the general ledger accounts
What is step 5 of the accounting cycle?
Prepare unadjusted trial balance
What is step 6 of the accounting cycle?
Record Adjusting Entries and Post to the Ledger Accounts
What is step 7 of the accounting cycle?
Prepare an Adjusted Trial Balance
What is step 8 of the accounting cycle?
Preparation of Financial Statements
What is step 9 of the accounting cycle?
Closing Process
What is step 10 of the accounting cycle?
Prepare a Post-Closing Trial Balance
prepared at year end
