Chapter 3

Question 1

A set of transactions that converts a cash inflow to a cash outflow or vice versa. Whether in investing, operating, or financing departments

Answer 1

Cash Cycle

Question 2

The receipt of funding from investors, using those funds to generate returns from investments and operations and returning the funds to investors

Answer 2

Financing Cash Cycle

Question 3

Begins with use of funds to purchase property that has long-term future benefits for the enterprise such as equipment and using the property to obtain economic benefits that ultimately result in cash inflows and disposing of property

Answer 3

Operating Cash Cycle

Question 4

Involves the purchase of items such as inventory; production, sales, and delivery of goods or provision of services; and receipts from customers

Answer 4

Operating Cash Cycle

Question 5

A basis of accounting that records economic events when they happen rather than only when cash exchanges occur; contrast with cash accounting

Answer 5

Accrual Accounting

Question 6

A method of accounting that records only cash exchanges; contrast with accrual accounting

Answer 6

Cash Accounting

Question 7

An accounting entry that reflects events or transactions in a period different from its corresponding cash flow

Answer 7

Accrual

Question 8

An accounting entry that reflects events or transactions after the related cash flow

Answer 8

Deferral

Question 9

A conceptual accounting outcome that would result from taking an average or consensus form a sample of disinterested accountants

Answer 9

Unbiased Accounting

Question 10

An overall evaluation of a set of financial statements as being fair representation of the enterprise’s economic conditions and performance, historically used by the IFRS

Answer 10

True and Fair

Question 11

How closely reported earnings correspond to earnings that would be reported in the absence of management bias

Answer 11

Quality of Earnings

Question 12

Accruals that reflect economic conditions and accounting standards with the application of professional judgement and considering professional ethics

Answer 12

Unbiased Accruals

Question 13

Accruals that result from contractual incentives for the firm or management as well as any unethical managerial opportunism to over- or under- accrue

Answer 13

Excessive Accruals

Question 14

The point in time at which one reporting period ends and the next begins

Answer 14

Cut-Off

Question 15

The period between the cut-off date and the date when the company authorizes its financial statements for issuance

Answer 15

Subsequent-Events Period

Question 16

An accounting change made necessary by the discovery of an incorrect amount, given information available at the time the amount was reported, the appropriate treatment is retrospective adjustment with restatement

Answer 16

Correction of an Error

Question 17

Applying an accounting change to all periods affected in the past, present, and future. With restatement with any comparative figures on the same basis as the current period figures. Without restatement reflects the accounting change’s impact on past periods in the current period

Answer 17

Retrospective Adjustment

Question 18

An accounting change made at the discretion of management. Ex. Change in inventory method. The appropriate treatment for changes in accounting policy is retrospective adjustment with restatement especially for comparability of financial statements

Answer 18

Change in Accounting Policy

Question 19

Applying an acccoutning change only to the current and future reporting periods without any changes to past financial statements

Answer 19

Prospective Adjustment

Question 20

An accounting change made necessary by the arrival of new information, the appropriate treatment is prospective adjustment

Answer 20

Change in Estimate