Chapter 1 - Conceptual Framework of Financial Accounting

Question 1

Dividend is / is not part of expense/cost.

Answer 1

IS NOT

Question 2

Revenue/expense occurs in transactions between _____ and ______

Answer 2

Owner; Non-owner

Question 3

Concept Statements are intended to establish _____ and fundamental ______ that will be the ____for development of accounting/reporting guidance.

Answer 3

Objectives; Concepts; Basis

Question 4

Objective of financial reporting is to provide _______ about the reporting entity that is _____ to primary users in making decision about investing

Answer 4

Financial information; Useful

Question 5

What are the 2 FUNDAMENTAL qualitative characteristics? (RF)

Answer 5

1. Relevance

2. Faithfulness

Question 6

Relevant information is capable of making a ________ made by users

Answer 6

Difference in decisions

Question 7

Relevant information must have what 3 qualities? (PCM)

Answer 7

1. Predictive value
2. Confirmatory value
3. Materiality

Question 8

Financial information has PREDICTIVE value if it can be used as an ______ employed by users to predict ________

Answer 8

Input to processes; Future outcomes

Question 9

Financial information has CONFIRMATORY value if it provides ______ about previous evaluations

Answer 9

Feedback (confirms or changes)

Question 10

Financial information is MATERIAL if ________ could influence decisions that users make on the basis of that information

Answer 10

Omitting/Misstating

Question 11

What are the 3 qualities of a FAITHFUL representation? (CNF)

Answer 11

1. Complete
2. Neutral
3. Free from error

Question 12

A complete depiction includes _______ for a user to ________ being depicted, including all necessary descriptions and explanations

Answer 12

All information necessary; Understand the phenomenon

Question 13

A neutral depiction is NOT ___________, or otherwise manipulated to ___________ that financial will be received favorably/unfavorably by users

Answer 13

Slanted, weighted, emphasized/deemphasized; Increase the probability

Question 14

Free from error means that there are _________ in the description of the phenomenon, and the process used to produce the information has been applied ______

Answer 14

No errors or omissions; Without errors

Question 15

What are the 4 ENHANCING qualitative characteristics? (TUCV)

Answer 15

1. Timeliness
2. Understandability
3. Comparability
4. Verifiability

Question 16

Timeliness means ________ to be capable of influencing their decisions

Answer 16

Having information available to decisionmakers in time

Question 17

Understandability means to __________ information clearly and concisely

Answer 17

Classify, characterize, and present

Question 18

Comparability means to ______ users to _________ among items. Comparability DOES NOT relate to a _______.

Answer 18

Enable; Identify and understand similarities/differences; Single item (requires at least 2 items)

Question 19

Verifiability means that ________ could reach consensus that a particular depiction is a ________.

Answer 19

Independent observers; Faithful representation

Question 20

What are the 4 basic assumptions? (EGMP)

Answer 20

1. Economic entity assumption
2. Going concern assumption
3. Monetary unit assumption
4. Periodicity assumption

Question 21

What are the 4 basic principles of accounting? (REHF)

Answer 21

1. Revenue recognition principle
2. Expense recognition principle (Matching principle)
3. Historical cost principle
4. Full disclosure principle

Question 22

Under “revenue recognition principle,” revenue is generally recognized when _____.

Answer 22

Earned, and realized or realizable

Question 23

“Earned” means the entity has ________.

Answer 23

Substantially accomplished the required act

Question 24

“Realized” means goods and services are _______ for ________.

Answer 24

Exchanged; Cash or claims to cash (receivables)

Question 25

“Realizable” means assets ________ are _______ to known amounts of cash/claims to cash.

Answer 25

Received in exchange; Readily convertible

Question 26

Under “expense recognition principle (matching principle),” efforts (expenses) should be ______ with ________ when it is reasonable and practicable.

Answer 26

Matched; Accomplishment (revenues)

Question 27

What are the 3 ways to apply “expense recognition principle (matching principle)”? (CSI)

Answer 27

1. Causal relationship
2. Systematic and rational
3. Immediate recognition

Question 28

Under “historical cost principle,” GAAP requires that most _________ be accounted for and reported on the basis of ___________

Answer 28

Assets and liabilities; Acquisition price

Question 29

Under “full disclosure principle,” accountants follow the general practice of ________ that is of ________ to influence the decisions of an informed user

Answer 29

Providing information; Sufficient importance

Question 30

What are the 4 types of constraints to financial reporting? (CMIC)

Answer 30

1. Cost-benefit relationship
2. Materiality
3. Industry practices
4. Conservatism

Question 31

What is the “Hierarchy of Accounting Information Qualities”?

Answer 31

1. Users (decision makers)
2. Constraints (benefits > cost)
3. Fundamental qualities (relevance, faithfulness)
4. Enhancing qualities (TUCV)

Question 32

Asset consists of what two factors?

Answer 32

1. Cash

2. Future cash

Question 33

Under “Equity,” the 3 accounts are: PRA

Answer 33

1. Paid in capital
2. Retained earnings
3. Accumulated OCI

Question 34

“Quick cash” increases when ____ or _____ assets increase

Answer 34

Realized (cash, claims); Realizable (convertibles, uncollected debt)

Question 35

Transaction is only recognized as “Revenue” when asset increase is _______ or _______

Answer 35

Realization; Earned

Question 36

Now (for both U.S. and IFRS), only _____ asset is required for recognition as “Revenue” (No longer need to be ____)

Answer 36

Earned; Realization