Chapter 1

Question 1

:Financial Statements

Answer 1

Income statement
Balance Sheet
Statement of Shareholders equity
Statement of Cash Flows

Question 2

Due Process

Answer 2

How FASB makes changes to GAAP
includes public hearings allowing others to discuss what changes they want

Question 3

Statements of Financial Accounting Concepts (SFACS)

Answer 3

set objectives and fundamentals that will be the basis for development of financial accounting and reporting standards

Question 4

First level of accounting

Answer 4

Why we do it?
To provide useful information to others such as investors

Question 5

Second level of accounting

Answer 5

includes qualitative characteristics:
Relevance
Faithful representation
Enhancing qualities

As well as the elements:
assets
liabilities
equity
investment by owners
distribution by owners
Revenues
Expenses
Gains
Losses

Question 6

Third level of accounting

Answer 6

How implementation
Includes assumptions, principles, and constraints

Question 7

Fundamental Qualities of accounting

Answer 7

Relevance, Faithful Representation

Question 8

Relevance

Answer 8

Predictive value - information can help users form their own expectations
Confirmatory Value - Accounting information helps user confirm or correct prior expectations
Materiality - company relative aspect of relevance

Question 9

Faithful Representation

Answer 9

Completeness - All info necessary is provided
Neutrality - Can’t be biased to one party over the other
Free from Error - Information is accurate

Question 10

Enhancing Qualities

Answer 10

Comparability - can compare the info with others in the same industry and other time periods
Verifiability - independent measurers can come to the same conclusion
Timeliness - Having information available to decision makers at good times
Understandability - Concise info that is easy to understand

Question 11

Cost effectiveness

Answer 11

Maintaining high quality statements comes at the cost of salary to accountants, and potentially disclosing secrets

Question 12

10 elements of financial statements

Answer 12

Revenues, Expenses, Gains, Losses, Assets, Liabilities, Equity, Investment by owners, Distributions to owners and comprehensive income

Question 13

Assets

Answer 13

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Question 14

Liabilities

Answer 14

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Question 15

Equity

Answer 15

Residual interest in the assets of an entity that remains after deducting its liabilities

Question 16

Investments by owners

Answer 16

Increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests in it

Question 17

Distributions to owners

Answer 17

Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to the owners

Question 18

Comprehensive income

Answer 18

Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from nonowner sources

Question 19

Revenue

Answer 19

Inflows or other enhancements of assets of an entity or settlement of its liabilities during a period from central operations

Question 20

Expenses

Answer 20

Outflows or other using up of assets or incurring of liabilities during a period from central operations

Question 21

Gains

Answer 21

Increases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners

Question 22

Losses

Answer 22

Decreases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners

Question 23

Economic Entity Assumption

Answer 23

Company keeps its activity separate from its owners and other businesses

Question 24

Going Concern Assumption

Answer 24

Company will last long enough to fulfill objectives and commitments

Question 25

Monetary Unit Assumption

Answer 25

Money is the common denominator and is stable, ignore inflation/deflation

Question 26

Periodicity Assumption

Answer 26

Company can divide its economic activities into different time periods artificially

Question 27

Measurement Principle

Answer 27

Most commonly used measurements are historical cost (PPE) and fair value (Financial instruments)

Question 28

Revenue Recognition

Answer 28

Companies recognize revenue when the performance obligation is satisfied

Question 29

Expense Recognition

Answer 29

Same as revenue. Recognize when incurred to get revenue

Question 30

Full Disclosure

Answer 30

Providing information that is sufficient importance to influence judgement and decisions of an informed user