Chapter 3 Accounting Analysis Flashcards
Ownership of Proprietorship and Partnership are generally _____.
Private
Corporations which are larger firms with diverse ownership that can be bought or sold in an open market are generally ________.
Public
What are the 3 reasons publicly traded corps. have to file financial reports?
- Monitoring 2. Contracting - example is bank contract for a loan, employee contract for bonus incentive 3. Valuation
TRUE OR FALSE? Because corporate managers have superior knowledge of their firms’ business, they are entrusted with making appropriate accounting estimates.
TRUE
Financial statements are __________ responsibility (not auditors)
management’s
TRUE OR FALSE? It is optimal to allow managers some discretion in applying accounting standards (e.g., allowance for doubtful accounts). Incentives exist for managers to distort accounting numbers positively (e.g., contracts, reputation)
TRUE
The ____ is a regulatory agency commissioned by Congress to monitor and enforce legal behavior in the U.S. capital markets.
SEC
What are the 2 financial reports that the SEC mandates that all publicly-traded firms file?.
10-Q: Quarterly report (filed at the end of each of the first 3 fiscal quarters) 10-K: Annual report (filed at the end of the last fiscal quarter)
The ____ has legal authority to enact civil or criminal penalties for lack of compliance or suspicion of fraud.
SEC
FASB = Financial Accounting Standards Board (private, non-profit) purpose is to establish and improve ____
GAAP
IFRS = International Financial Reporting Standards; they developed ____
GAAP
IASB developed the IFRS, which is the international accounting framework within which to properly organize and report financial information.
IFRS (International Financial Reporting Standards)
TRUE OR FALSE: Uniform accounting standards MAXIMIZE manager’s ability to manipulate financial statement information
FALSE, it minimizes a manager’s ability to manipulate
The Securities and Exchange Commission (SEC) U.S. government agency that _____ rules for financial statements by public companies.
enforces
The Financial Accounting Standards Board (FASB) is the private sector body given the responsible for developing detailed rules for ____ within U.S.; they ____ the rules.
GAAP set
Head Financial Accountant is usually called the _____
controller
An auditor is an independent agent hired by the firm. They typically work for a ____ firm.
CPA
Accounting is all about ____. (what Prof. Tang kept saying in class)
Timing
Cash basis of accounting: Method of accounting where income is calculated by recording revenues when cash is _____ and expenses when expenditures _____.
received occur
____ basis of accounting: Method of accounting where income is calculated by recording revenues when benefits are earned and expenses when resources are given up to produce the revenues (expenses are matched to revenues). – What GAAP requires
accrual
What is a downside to CASH BASIS ACCOUNTING? Financial statements reflect when cash comes into and out of a company, but not necessarily when business transactions take ____ between the company, customers, and suppliers.
place
What 4 criteria must by met under ACCRUAL BASIS for revenue to be posted or recognized? (remember DPPC)
- The company has delivered its goods/services to the customer.
- The price is fixed or determinable.
- There is persuasive evidence of an arrangement for customer payment (written orders)
- Collection of cash (or other benefits) is reasonably assured, though there may still be some uncertainty (uncollectible accounts, warranties). The degree of uncollectability should be estimated with reasonable reliability.
Goal of accrual accounting is to report inflows of assets (e.g., cash or A/R) when they are ____, and net them against outflows of assets ____ to generate them.
earned
used
The ______principle recognizes costs and/or assets used as expenses in the period in which they produce revenue. (Cost of the hat is not recognized until it actually sold)
matching
