Chapter 1 - ACC Environment and the Conceptual Framework

Question 1

Financial accounting info enables…

Answer 1

efficient resource allocation decision based on the risks and returns of an investment

Question 2

Primary users

Answer 2

capital providers (shareholders/creditors)

Question 3

Info should help primary users predict ______ of future cash flows

Answer 3

amounts, timing, uncertainty

Question 4

in cash accounting, income is calculated based on…

Answer 4

the exchange of cash

Question 5

benefit of cash accounting

Answer 5

simple, clear timing

Question 6

disadvantage of cash accounting

Answer 6

poor matching of resources expended to benefits received

Question 7

in accrual accounting, income is based on…

Answer 7

when revenues are earned and expenses when they are incurred

Question 8

advantages of accrual

Answer 8

better performance measurement

Question 9

disadvantages of accrual

Answer 9

requires more estimates and assumptions

Question 10

four underlying assumptions

Answer 10

1. economic entity
2. going concern
3. periodicity
4. monetary unit

Question 11

fundamental characteristics

Answer 11

relevance, faithful representation

Question 12

enhancing characteristics

Answer 12

comparability, verifiability, timeliness, understandability

Question 13

fair value measurement approach

Answer 13

market approach, income approach, cost approach