Chapter 1 Part B

Question 1

Economic entity assumption

Answer 1

All economic events can be identified with a particular entity

Question 2

Going concern assumption

Answer 2

Unless told otherwise a business entity will continue to operate indefinitely

Question 3

Periodicity assumption

Answer 3

Related to qualitative characteristic of timeliness. External users need periodic info to make decisions

Question 4

Monetary unit assumption

Answer 4

Nominal units of money with no adjustments for change in purchasing power

Question 5

4 criteria for recognition

Answer 5

DMRR
Definition 
Measurability 
Relevance
Reliability

Question 6

The 4 underlying Assumptions

Answer 6

Economic entity, periodicity, going concern, monetary unit

Question 7

Definition in recognition

Answer 7

Item meets Definition of an element of financial statements

Question 8

Measurability

Answer 8

Item has relevant attribute that is measurable

Question 9

Relevance

Answer 9

Information is capable of making a difference in decision making

Question 10

Reliability

Answer 10

Faithfully represented verifiable and neutral

Question 11

Revenues

Answer 11

Inflow of assets or settlement of liabilities resulting for Providing a product or service to a customer

Question 12

ASU 2014-09

Answer 12

Describes how we determine timing and measurement of revenue

Question 13

When do we recognize revenue ?

Answer 13

When goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.

Question 14

Credit to revenue account

Answer 14

Corresponding debit typically increases asset usually cash or A/R

Question 15

Expenses

Answer 15

Outflows or other using up of assets or I currencies of liabilities.

Question 16

Expense recognition uses what four approaches

Answer 16

1. Cause effect relationship
2. Associating an expense with revenues recognized in a specific time period.
3. systematic and rational allocation to specific time periods.
4. In period incurred without regard to relevant revenues.

Question 17

Cause effect relationship

Answer 17

This Is good to use for COGS.

Example : pet smart revenue from selling dog food and its cost to purchase that dog food from suppliers.

Question 18

Associating expense with revenues recognized in a specific time period.

Answer 18

Monthly salary of an office worker is indirectly related to revenue recognized due to benefits employee provides to the company.

Question 19

Systematic and rational allocation to specific time periods

Answer 19

Example depreciation way to allocate cost of equipment to the periods in which that equipment is used to produce revenue

Question 20

Recognizing expenses in period incurred

Answer 20

Happens when costs are incurred but it is impossible to determine in which period or periods if any related revenues will occur

Question 21

RMD

Answer 21

Recognition measurement disclosure

Question 22

Recognition

Answer 22

Refers to the process of admitting info into financial statements

Question 23

Measurement

Answer 23

Process of associating numerical amounts with the elements

Question 24

Disclosure

Answer 24

Including additional info in the financial statements

Question 25

Five measurement attributes employed in GAAP

Answer 25

``` Historical cost Net realizable value Current cost Present value Fair value (market value) ```

Question 26

Historical cost

Answer 26

Aka book value or original transaction value. For liabilities it is current cash equivalent received in exchange for assuming the liability

Question 27

Net realizable value

Answer 27

Amount of cash into which an asset is expected to be converted in the ordinary course of business

Question 28

Current cost

Answer 28

Cost that would be incurred to purchase or reproduce the asset

Question 29

Present value

Answer 29

Discounting from future cash flows to approximate fair value

Question 30

Fair value

Answer 30

Market value. Price that would be received to sell assets or paid to transfer a liability in an orderly transaction between mArket participants at a set date.

Question 31

3 valuation techniques to measure fair value

Answer 31

MArket approach Income approach Cost approach

Question 32

Market approach

Answer 32

Base value on market info

Question 33

Income approach

Answer 33

Calculate FV and discount it to PV

Question 34

Cost approach

Answer 34

Estimation of amount by seeing what would be required to buy or construct an asset of similar quality and condition

Question 35

Level 1 fair value hierarchy

Answer 35

Most desirable and is quoted market prices in active markets for identical assets or liabilities

Question 36

Level 2 FVH

Answer 36

Inputs other than quoted prices that are observable for the asset or liability.

Question 37

Level 3 FVH

Answer 37

Unobservable inputs that reflect entity's own assumptions about the assumptions market participants would use in pricing the asset or liability ( least desired)

Question 38

Full disclosure principle

Answer 38

Financial reports should include any info that could affect decisions made by external users

Question 39

Parenthetical comments

Answer 39

Modifying comments placed on the face of financial statements

Question 40

Disclosure notes

Answer 40

Additional insights about company's operations Accounting principles contractual agreements and pending litigation

Question 41

Supplemental schedules and tables

Answer 41

Report more detailed info and is shown in | Primary financial statements

Question 42

VTUCC enhancing qualitative characteristics

Answer 42

``` Verifiability Timeliness Understandability Comparability Consistency ```

Question 43

Fundamental qualitative characteristics 2 categories

Answer 43

Must be relevant and have faithful representation

Question 44

Relevance fundamental characteristic

Answer 44

PV, CV, materiality

Question 45

Faithful representation

Answer 45

CNF Complete Neutral Free from error

Question 46

Cost effectiveness.

Answer 46

Key constraint to the accounting choices we make. Benefits must exceed costs of endowing financial info.

Question 47

Elements of financial statement

Answer 47

Assets Liabilities Equity Investments by owners Distribution to owners Comprehensive income Revenues Expenses Gains Losses

Question 48

Assets

Answer 48

Probable future economic benefits obtained or controlled by a particular entity.

Question 49

Liabilities

Answer 49

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 50

Equity

Answer 50

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

Question 51

Investments by owners

Answer 51

Increases in equity resulting form transfer to it from or entities of something of value to obtain or increase ownership interest in it.

Question 52

Distribution to owners

Answer 52

Decreases in equity resulting form transfer to owners

Question 53

Comprehensive income

Answer 53

Change in equity during a period from transactions and other events and circumstances from no owner sources. All changes to equity during a period except those resulting from IBO and DBO

Question 54

Revenues

Answer 54

Inflows or other enhancement of assets or settlement of liabilities

Question 55

Expenses

Answer 55

Outflows or other using up of assets or I currencies of liabilities during a period from delivering or producing he goods rendering services or other activities that constitute the entity's ongoing major or central operations.

Question 56

Gains

Answer 56

Increases in equity from peripheral or incidental transactions of an entity

Question 57

Losses

Answer 57

Represent decreases in equity arising from peripheral or incidental transactions of an entity