Cards I Made Flashcards
What statements are generally included in a financial report of a company?
Balance Sheet, Income Statement, Statement of Cash Flows, Stockholders equity
What are the three steps of capital allocation?
Financial reporting, users analyze financial reports, capital allocation based on analysis
What is the objective of financial reporting?
To provide financial info about the reporting entity that is useful to potential equity investors, creditors, and others in decisions about providing resources.
What are the four elements of the financial reporting objective?
General purpose statements, equity investors/creditors, entity perspective, decision usefulness
What makes a GAAP procedure accepted?
Either a rule making body pronouncement, OR universal acceptance and application.
What three agencies are involved in standard setting?
The SEC, AICPA, and FASB
Do all publicly traded companies have to file audited statements with the SEC?
Yes
True of False: FASB has more power in setting standards than the SEC
False, they usually go through the process of creating the standard but SEC is the more powerful, basically what they say goes.
Which of the following created the Accounting Principles Board, which released 31 APB opinions from ‘59-‘73?
AICPA
FASB
SEC
FAF
AICPA founded APB
What committee represents the AICPA currently in working with the FASB on accounting issues?
Accounting Standards Executive Committee (AcSEC)
True or false: The FAF funds the AICPA’s AcSEC
False
What role does the FAF (Financial Accounting Foundation) play in regards to FASB?
Selects members of FASB, funds the activities of FASB, and oversight
What is FASB’s mission?
establish/improve standards of financial reporting for the guidance/education of the public.
Which of the following isn’t true about the members of FASB?
There are 7 of them.
Not necessary to be a CPA
Can still be a partner in another company
serve in 5 year terms
Can still be a partner in another company. They are required to sever all business ties.
True or false: The Financial Standards Advisory Council (FASAC) consults with FASB on major policy issues, technical issues, and helps in selection/organization of task forces.
True
True or false: If FASB and AICPA agree on an issue, they can overrule the SEC with a 2/3 majority.
FALSE
In terms of the due process of FASB when establishing a standard, how many of the members need to back the new standard?
4 of 7
What is the process for FASB to create a new standard?
1) ID topic and place it on agenda
2) Research/analysis, prelim views of pros/cons
3) Public Hearing on proposed standard
4) Board evaluates research & public opinion, issues exposure draft
5) Board evaluates responses & changes exposure draft is needed
6) Final standard issued
When FASB wants to establish a new standard, they are only concerned with the opinions of CPA’s because they are the real accountants that will most use the standard. True or false
False. When establishing accounting standards FASB:
1) Should be responsive to the needs/viewpoints of the entire economic community, not just CPA’s.
2) Should operate in full view of the public through due process.
What are the two main types of pronouncements from FASB?
Accounting standards Updates, and Financial Accounting Concepts
Which of the two types of pronouncements actually establishes GAAP?
Accounting standards updates
True of false: There is no one place where all accounting standards to date are located to use as a reference.
False. The Codification contains all standards, and is available to search online
Does politics affect GAAP?
Yes
The Sarbanes Oxley act requires companies to attest to their internal controls. True of False
True
Which of the following is not a challenge for Financial Reporting:
Non financial measurements
Forward looking info
Soft assets
Timeliness
Understand-ability
Accumulated Depreciation
Accumulated Depreciation
Why is forward looking info a challenge for Financial Reporting?
Because the statements only show historical data, which then needs to be used to try to predict the future.
Only wholesalers in the EU are required to use IFRS (International Financial Reporting Standards) T or F
False. All companies in EU must use IFRS
T or F: The IFRS and GAAP are very different
False. They are pretty similar
What are the four enhancing qualities of relevance and faithful representation under FASB’s conceptual framework?
Comparability, Verifiability, Timeliness, understandibility
What makes something relevant?
capable of making a difference in a decision
True or False. Faithful Representation and completeness are the fundamental qualities under FASB’s conceptual framework.
False. Faithful rep and Relevance
Which one of the following is an assumption present on the third level of FASB’s conceptual framework?
Periodicity
Monetary Unit
Going Concern
Economic Entity
All are assumptions
All are assumptions
What does the revenue recognition principle state?
Recognize revs when performance obligation is completed
There is a tradeoff that takes place under the full disclosure principle. What is the tradeoff?
Sufficient detail to disclose matters that make a difference to the user, but sufficient condensation to keep the info understandable
Info can be found in three places in a financial report. What are the three places?
Main body of statements, notes, supplementary info
What is the major constraint on financial reporting that FASB ID’s?
Cost
What are the two broad types of adjusting entries?
Deferrals, and Accruals
Is unearned rev a deferral?
Yes
Name the steps in the accounting cycle.
Journal, post to ledger, trial balance, adjustments, adj trial bal, statements, closing, post-close trial bal
If I just got done creating the adjusted trial balance, what should I create next?
The income statement
I just posted my last journal entry to the ledger for the month, what should I do next?
Create a trial balance (unadjusted)
Supplies, insurance, and depreciation are examples of what type of expense?
Prepaid expense
Are prepayments a deferral or an accrual?
Deferral
Do you defer bad debts? or do you accrue them?
Accrue them
I just bought supplies for 600 dollars on account. What journal entry should I make?
Supplies 600
Accounts payable 600
I need to adjust the supplies because a physical count at the end of the period showed only 150 dollars worth remaining. What entry do I make to the journal?
Supplies expense 450
Supplies 450
What does the income statement give the user for info?
Provides users info to predict the amounts, timing, and uncertainty of future cash flows.
The text lists three things that the Income statement is useful for. What are they?
1) Evaluating the past performance of the company
2) Provide a basis for predicting future performance
3) Help assess the risk/uncertainty of achieving future cash flows
The text lists three things that the Income Statement has for limitations. What are they?
1) Companies omit items from I.S. that can’t be measured reliably (unrealized gains/losses)
2) Income numbers are affected by the accounting methods used (fifo vs. lifo)
3) Income measurement involves judgement.( useful life estimates)
What is earnings management?
Planned timing of rev,exp, gains, losses, to smooth out bumps in earnings.
T of F. Earnings management increases quality of earnings.
False. Lowers quality of earnings
T of F. We focus on the transaction approach when creating Income statements
True
What are the four basic elements of an I.S.?
Revs, exps, gains, losses
What four intermediate components of the I.S. are found under the operating section?
Sales/rev, COGS, Selling exps, admin/general exps
t or f. Income tax comes before the unusual section of the I.S.
False, after unusual section
What should the line directly after the unusual section of the I.S. say?
Income from ops before tax
T or F. Unusual items need to be infrequent and unusual.
False
T or F. Losses on the write down of receivables, inventories, and assets are part of the unusual section of the I.S.
True
Bad Debt goes under the unusual section. True or False?
True
What two criteria must be met for a discontinued op to be listed on the I.S.?
1) Company eliminates the results of ops of a component of the business.
2) there is no significant involvement in that component after disposal transaction
T or F. You will only see “Income from continuing ops” on the income statement if there is an unusual item listed..
False. Only will see this if a discontinued op is listed
Would Ice damage to a building in Northern Maine be unusual or extraordinary?
Unusual
Would a flood in the desert of Nevada be unusual or extraordinary?
Extraordinary
If a new law is passed that makes the product you make illegal, hence putting that product out of business, would this be unusual or extraordinary?
Extra
T or F. Interest expense is an admin expense on the I.S.
F. Unusual
T or F. For all intents and purposes, Unusual and non operating are the same section with different names on the I.S.
T
What is the most significant business indicator now a days according to the book?
Earnings Per Share
Earnings per share is the amount of the dividends paid to the investor per share. T or F.
False, it is the dollars earned per share, not the amount of dividends
Earnings per share is usually found in the notes of the Income statement. T or F.
False, on face of I.S.
A change in an accounting estimate requires retrospective adjustment. T or F.
False, not considered an error and just takes effect in the period the change was made.
A change in an accounting principle requires a retrospective adjustment. T or F.
True.
The adjustment to be made to beginning retained earnings in the event of an accounting principle change is equal to what?
The cumulative effect on prior years.
I decided to switch from fifo to lifo to value my inventory. What kind of change is this?
Change in accounting principle
I decided that the useful life of my equipment needs to be increased by two years. What kind of change is this?
Change in estimate
When comprehensive income is listed on the I.S. an earning per share breakout is required for this section. T or F
False
When comprehensive income is listed on the I.S. a two statement approach is required. T or F
False, can all be on one statment
If you have an extraordinary event on your income statement and comprehensive income, than a two statement format is required. T or F.
False
What is comprehensive income?
Includes all changes in equity during a period except from investments by owners and distributions by the owners
The company has a security for sale that hasn’t sold yet, but is likely to make to the company 40k in gains. This should be reported under unusual section. (I sell t-shirts as my main business.) T of F.
F, comprehensive income
