Chapter 3 Flashcards
SEC-annual report
US governmental body that oversees US financial markets and accounting standard-setters
Who sets the U.S. accounting standards?
Financial Acct. Standards Board (FASB)
Who sets auditing standards?
Public Comp. Acct. Oversight Board (PCAOB)
Who sets international accounting standards?
The International Accounting Standards Board (IASB) issues standards called International Financial Reporting (IFRS)
Relevance
If accounting info makes a difference in a business decision
- predicted value (helps provide accurate expectations about the future) last yr. info should be similar to the present yr.
- confirmatory value (confirms or corrects prior expectations)
-material (large enough to make a difference in native nature)
Faithful representation
Info accurately depicts what really existed or happened
-info must be complete, unbiased, and free from material error
Comparability
when diff companies use the same acc principles
Consistency
a company uses the same acc principles & methods year to year
Verifiable
An auditor gets the same results
Timely
annual report, within 60 days of year end
Understandability
clear language
In preparing the financial statements, the accounting manager has recorded the payment of inventory less the discounts extended y the new vendor. However, the accounting manager did not include the increasing rate of employee turnover due to unsatisfactory working conditions. What is most likely the reason behind this?
a. employee turnover only affects going concern assumption
b. employee turnover does not cause the company anything
c. employee turnover are not given monetary value
d. employee turnover is an HR problem
c. employee turnover are not given monetary value
A regional manager travels frequently for work, using a company credit card to pay for hotel costs. One weekend, he uses his company credit card to pay for his family to stay at a hotel on a personal vacation. However, he does not inform the company that the transaction was for personal use. This is in violation of which key assumption in financial reporting?
a. economic entity assumption
b. periodicity assumption
c. monetary unit assumption
d. going concern assumption
a. economic entity assumption
Which of the following assets would likely be reported at fair value?
a. investment securities
b. buildings
c. equipment
d. prepaid insurance
a. investment securities
Nolan Grocers prepares financial statements dated December 31 of each year. This is an example of the ______ assumption.
a. going concern
b. economic entity
d. monetary unit
e. periodicity
e. periodicity
Mitchell Financial Services purchased some investment securities as part of their company investing activities. Each time the company prepares their financial statements, the accountant checks the market value of the securities and records their new value in the financial reports. This is an example of using the ______ principle.
a. cost constraint
b. full disclosure
c. historical cost
d. fair value
d. fair value
Birch Tree Press issues common stock for $30,000 and uses $10,000 of the cash to purchase a new printer. As a result,
a. stockholders’ equity will be reduced by $30,000
b. assets will be increased by $20,000
c. assets will be increased by $30,000
d. assets will be unchanged
b. assets will be increased by $20,000
