Chapter One: Financial Accounting and Accounting Standards

Question 1

List the Financial Statements

Answer 1

Statement of Stockholder’s Equity, Income Statement, Balance Sheet, Statement of Cash Flows

Question 2

What do capital markets depend on?

Answer 2

Financial Information

Question 3

What are the problems with financial reporting?

Answer 3

Nonfinancial measures, forward-looking information, soft assets, and timeliness

Question 4

Nonfinancial Measures

Answer 4

Not quantitative or monetary value (ex. customer satisfaction)

Question 5

Forward-Looking Information

Answer 5

Information that projects company’s future, use past information (ex. next year’s sales)

Question 6

Soft asset

Answer 6

Intangible benefit (ex. good employees)

Question 7

Timeliness

Answer 7

information could be outdated and not produced in time, issued quarterly (doesn’t capture as much information) or yearly

Question 8

What is the objective of financial reporting?

Answer 8

Provide financial info about reporting entities that is important/useful to present and potential equity investors and lenders about investing in entity

Question 9

Consistency

Answer 9

Compare from year to year because using same principles

Question 10

Comparability

Answer 10

Different companies using same rules for financial statements (GAAP)

Question 11

Securities and Exchange Commission

Answer 11

Regulate financial reporting, established around time of Great Depression

Question 12

American Institute of Certified Public Accountants (AICPA)

Answer 12

formed Committee on Accounting Procedure that issued SI Accounting Research Bulletins (ARB) that institute GAAP (now Accounting Principles Board)

Question 13

Financial Accounting Standards Board (FASB)

Answer 13

standard setting body, independent body, statements of financial accounting standards (SFAS, FASB)

Question 14

Financial Accounting Concepts

Answer 14

theory upon which we rest our accounting standards (issued by FASB)