chapter 2: financial reporting, T accounts, current assets, etc

Question 1

what is the objective of finical reporting?

Answer 1

Provide useful economic information to external users for decision making & assessing future cash flows

Question 2

what are the qualitative characteristics of a financial report?

Answer 2

Relevance

Faithful Representation

Comparability

Verifiability

Timeliness

Understandability

Question 3

what does it mean for a financial report to be relevant?

Answer 3

it can influence a decision

it has predictive or confirmatory value

People have to be able to read them and understand the usefulness to the company decision making

Question 4

what does it mean to have faithful representation?

Answer 4

info provided in finical statements must reflect the truth in all transactions

Question 5

what does it mean to have comparability?

Answer 5

methods have to be similar to whatever you recorded in past periods

Have to keep the same set of standards (unless new regulations (include in extra info))

Have to be comparable to those in the market with you, competitors

Question 6

what does it mean to be verifiable?

Answer 6

indépendant accountants can agree on:

nature of transaction

amount of transaction

Question 7

what does it mean to be timely?

Answer 7

enhances predictive and confirmatory value

Has to impact your time management relevance for decision making

Question 8

what does it mean to be understandable?

Answer 8

everyone (or at least all accountants) must comprehend the meaning

Question 9

why must a reader be aware of accounting measurement constraints?

Answer 9

for accurate representation of financial statements

Question 10

what is the cost constraint?

Answer 10

info should be produced only if perceived benefits of increased decision usefulness exceed expected costs of providing the same info

Question 11

what does the prudence constraint mean?

Answer 11

there is need of special care to avoid overstating assets or understating liabilities and expenses

Question 12

what are the three assumptions we must consider in a financial statement?

Answer 12

separate entity assumption

stable monetary unit assumption

continuity assumption

Question 13

separate entity assumption

Answer 13

we must not consider nor account for an organization’s owner’s activities

we must only consider the businesses activities

Question 14

stable monetary unit assumption

Answer 14

we must account activities in the currency in which the company resides

Question 15

continuity assumption

Answer 15

the company must want to be successful and survive into a foreseeable future

Question 16

what are the two measurement concepts we must consider in a financial statement?

Answer 16

the mixed attribute measurement model

the historical cost principle

Question 17

the mixed attribute measurement model

Answer 17

used to measure different assets and liabilities

Question 18

what are current assets

Answer 18

assets that will be used into cash, usually within a year

What you expect to use in the current year

Question 19

What are the types of current assets

Answer 19

CASH

short term investments

Accounts receivable (always here cause verbal)

prepaid expenses

inventories

etc

Question 20

What are the types of non-current assets

Answer 20

land

equipment

goodwill

intangible assets

notes payable (If longer than a year)

etc

Question 21

what is a consolidated financial statement?

Answer 21

finical statement made by a mother company owning multiple baby companies

Includes the info of mother company and of subsidiaries (baby companies)

Question 22

what are provisions?

Answer 22

liability that is more likely to happen than not happen in the future

You have to record it in the financial position

You put it in the notes to further explain what is going on

You cannot do the same for revenues

Question 23

what is necessary in a chart of accounts?

Answer 23

You need to have for sure identifying number and name

Question 24

what are. on current assets?

Answer 24

considered to be along term

they will be asked to be turned into cash in over a year

Question 25

what are Current liabilities

Answer 25

obligations that will be payed out in the coming year

Question 26

what are examples of current liabilities?

Answer 26

accounts payable (always verbal)

short term debt

income taxes payable

accrued liabilities

provisions

Question 27

give examples of non current liabilities

Answer 27

long term debt

provisions

notes payable (if over a year)

Question 28

what are the two types of events included in a transaction?

Answer 28

external event

internal event

Question 29

what are the two types of events included in a transaction?

Answer 29

external events

internal events

Question 30

external events

Answer 30

exchanges of assets, goods , or services by one party for assets, services, or promises to pay (liabilities) by one or more other parties

ex: buying machine from supplier

Question 31

internal events

Answer 31

events that are not changes between businesses and other parties

still have an effect on accounting entity

ex: using buildings for several years