Chapter 1

Question 1

WHAT ARE THE QUALITATIVE CHARACTERISTICS?

Answer 1

RELEVANCE: PREDICTIVE VALUE, CONFIRMATORY VALUE, MATERIALITY

FAITHFUL REPRESENTATION: COMPLETENESS, NEUTRALITY, FREE FROM ERRO

Question 2

EXPLAIN THE RELEVANCE QUALITATIVE CHARACTERISTIC?

Answer 2

Capable of making a difference in decision of users via predictive value, confirmatory value and materiality.

Question 3

EXPLAIN THE PREDICTIVE VALUE?

Answer 3

If it can be used as an input to processes employed by users to predict outcomes. (like sales from the previous 5 years to predict this year’s sales. Useful in predictions.

Question 4

EXPLAIN THE CONFIRMATORY VALUE?

Answer 4

Provides feedback (confirms or changes) about previous evaluations. (like the amount of sales reported this year is used to asses what we expected sales to be this year. )

Question 5

EXPLAIN MATERIALITY?

Answer 5

Information is material if omitting it or misstating it could influence decisions that users maker (like companies not reporting revenue on segments). Capable of Influencing decisions.

Question 6

EXPLAIN THE FAITHFUL REPRESENTION QUALITIVE CHARACTERISTIC?

Answer 6

Represents economic phenomena in words and numbers via completeness, neutrality and free from error.

Question 7

EXPLAIN COMPLETENESS?

Answer 7

This includes all information necessary for a user to understand the phenomenon being depicted. includes information necessary for understanding.

Question 8

EXPLAIN NEUTRALITY?

Answer 8

Depiction is without bias. Free from bias.

Question 9

EXPLAIN FREE FROM ERROR?

Answer 9

NO errors or omissions. Generally accurate.

Question 10

WHAT ARE THE ENCHANCING CHARACTERISTICS?

Answer 10

COMPARABILITY, VERIFIABILITY, TIMELINESS, UNDERSTANBILITY

Question 11

EXPLAIN COMPARABILITY

Answer 11

Can be compared with similar information about other entities and with similar information about the same entity. Helps users decisions involve choosing between alternatives.

Question 12

EXPLAIN VERIFIABILITY

Answer 12

Information faithfully represents the economic phenomena it purports to represent. This means that different knowledgeable and independent observers could reach consensus. Confirmable

Question 13

EXPLAIN TIMELINESS

Answer 13

In time to be capable of influencing their decisions. Reported soon enough to make a difference.

Question 14

EXPLAIN UNDERSTANBILITY

Answer 14

Presented clearly and concisely

Question 15

EXPLAIN EFFECTIVENESS CONSTRAINT

Answer 15

Costs of reporting are justified by the benefits of reporting that information.

Question 16

WHAT FINANCIAL STATEMENT ARE POINT IN TIME ELEMENTS?

Answer 16

Balance sheet. Assets, liabilities, equity

Question 17

EXPLAIN ASSETS?

Answer 17

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

Question 18

EXPLAIN LIABILITIES?

Answer 18

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

Question 19

EXPLAIN EQUITY?

Answer 19

Net assets is the residual interest in the assets of an entity that remains after deducting its liabilities.

Question 20

WHAT IS THE FINANCIAL STATEMENT THAT IS PERIOD OF TIMES?

Answer 20

Stockholders equity statements, Income Statements

Question 21

EXPLAIN INVESTMENTS BY OWNERS?

Answer 21

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something valuable to obtain or increase ownership interests in it. (Stockholders Equity Statement)

Question 22

EXPLAIN DISTRIBUTION TO OWNERS?

Answer 22

Decreases in equity of a particular business enterprise resulting from transferring assets, rendering service, or incurring liabilities by the enterprise to owners. (Stockholders Equity Statement)

Question 23

EXPLAIN COMPREHENSIVE INCOME?

Answer 23

A change in equity of a business enterprise during a period from transaction and other events and circumstances from nonowners sources. (Comprehensive Income Statement)

Question 24

EXPLAIN REVENUES?

Answer 24

Inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering service or other activities that constitute the entity’s ongoing major or central operations. (Income Statement)

Question 25

EXPLAIN EXPENSES?

Answer 25

Outflows or other using up of assets or incurrences of liabilities from delivering or producing goods, rendering services or carrying out other activities that constitute the entity’s ongoing major or central operations. (Income Statement)

Question 26

EXPLAIN GAIN?

Answer 26

Increases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners. (Income Statement)

Question 27

EXPLAIN LOSSES?

Answer 27

Decreases in equity from peripheral or incidental transactions of an entity and from all transactions and other events and circumstances affecting the entity except those that result from expenses or distribution to owners. (Income Statement)

Question 28

WHAT ARE THE FOUR KEY ACCOUNTING ASSUMPTIONS?

Answer 28

Economic Entity, Going Concern, Periodicity, Monetary Unit

Question 29

WHAT IS THE ECONOMIC ENTITY?

Answer 29

Specific economic activities are considered an identifiable accounting unit. Entities are separate from its owners and from other entities. Specific activities are identified with an accounting unit.

Question 30

WHAT IS THE GOING CONCERN?

Answer 30

Entity expected to continue operations for the foreseeable future. Entity expected to carry out contemplated operations and commitments.

Question 31

WHAT IS PERIODICITY?

Answer 31

Report changes in a company’s financial position over a series of distinct time periods such as months, quarters, or years. A company’s economic life is divided up into artificial periods for reporting periods.

Question 32

WHAT IS THE MONITARY UNIT?

Answer 32

Reports results of a company’s economic activities in the US dollar. Ignore changes in the purchasing power of currency (such as inflation and deflation)

Question 33

WHAT ARE THE FOUR KEY ACCOUNTING PRINCIPLES?

Answer 33

Measurement Principles, Revenue Recognition, Expense Recognition, Full Disclosure

Question 34

WHAT IS THE MEASUREMENT PRINCIPLE?

Answer 34

GAAP is a mixed-attribute measurement model.

Historical Cost: Original exchange price (verifiable). Fair Value: Selling Price (subjective)

Question 35

WHAT IS THE REVENUE RECOGNITION PRINCIPLE?

Answer 35

Recognize revenue when seller satisfies a performance obligation

Question 36

WHAT IS THE EXPENSE RECOGNITION PRINCIPLE?

Answer 36

Recognize expense at the same time as revenue (expense directly related to revenue) (COGS). Recognize expense as incurred (expense incurred to obtain benefits exhausted in period) (Utilities). Recognize expense systematically (expense incurred to obtain benefits over several periods) (Cost of Equipment)

Question 37

WHAT IS THE THE FULL DISCLOSURE PRINCIPLE?

Answer 37

Financial Statements must include all relevant information needed to make informed investment and credit decisions. Accompanying notes. Supplementary schedules. Modifying comments on face of financial statements.