FAR 2

Question 1

How to convert from accrual basis to cash basis when given income…(equation)

Answer 1

A = L + E
Change in A = Change in L + Change in E
[break assets down]
Change in cash + Change in other assets (OA) = same
[isolate cash]
Change in C = Change in L + Change in E - Change in OA
Change in C = Change in L - Change in OA
[can ignore equity]
[pay attention to signs, especially OA]

Question 2

How to convert from cash basis to accrual basis when given income…(equation)

Answer 2

Change the signs

Change in C = - Change in L + Change in OA

Question 3

How to convert from cash basis to accrual basis when given expense…(equation)

Answer 3

Change in C = Change in L - Change in OA

[watch the signs]

Question 4

How to convert from accrual basis to cash basis when given expense…(equation)

Answer 4

Change in C = - Change in L + Change in OA

Question 5

What other comprehensive basis of accounting be used other than GAAP? Are they acceptable under GAAP?

Answer 5

1. Same basis as used to file an income tax return.
2. Cash receipts and disbursements basis.
   No they are not acceptable under GAAP

Question 6

What are the most common modifications when converting from cash to modified cash?

Answer 6

Capitalization and amortization of long-lived assets and accrual for income taxes.

Question 7

Cash collection for A/R equation…

Answer 7

Beginning balance
\+ Sales
- Collections
- Write offs 
= Ending balance

Question 8

Operating activities of the stmt of cash flows includes….

Answer 8

I/S transactions - Revenues and expenses

Question 9

Investing activities of the stmt of cash flows includes…

Answer 9

LT assets and investments (collection of note receivable from related party b/c company is lending money to related party and lending is not a primary business activity).

Question 10

Financing activities of the stmt of cash flow includes…

Answer 10

Liabilities and owners’ equity (proceeds from note payable)

Question 11

Elements of Codification…

Answer 11

Codification only includes GAAP principles
Codification includes authoritative guidance adopted prior to the Codification (including APB Opinions and FASB Interpretations)
Includes All GAAP principles which are equally authoritative (no hierarchy)
Codification does not included international stds (IFRS)
Does not include all SEC rules

Question 12

How is the Codification changed/updated?

Answer 12

Through Accounting Standards Updates (ASUs)

Question 13

Conceptual framework (NEED TO MAKE PAPER FLASHCARD FOR THIS)

Answer 13

Establishes objectives/concepts for developing financial accounting/reporting standards (Not GAAP)
Objective of financial reporting: DECISION USEFULNESS
Primary Qualitative characteristics:
1. Faithful Representation: (comparability) [Think Depend]
a. Completeness
b. Neutrality-never compromise
c. Free from material error
2. Relevance: (comparability) [Think Relate]
a. Predictive value
b. Confirmatory value-usefulness
c. Materiality
Secondary Qualitative characteristics:
1. Consistency - increases usefulness/relevance of info
Constraint:
1. Cost-benefit

Question 14

Recognition is…

Answer 14

Recording and reporting an item in the financial statements

Not all recognitions are realizations

Question 15

Realization is…

Answer 15

Converting noncash resources/rights into money

All realizations are recognitions

Question 16

Interim financial statements emphasize

Answer 16

Timeliness

Question 17

Objectives of financial reporting are based on…

Answer 17

Needs of the users of the information

Most important: assessments of future performance and cash flow generation

Question 18

Consistency…

Answer 18

applying accounting principles in the same manner from year to year

Question 19

Going concern…

Answer 19

assuming the entity will continue into the future;

supports historical cost principle

Question 20

Matching

Answer 20

match expenses with the revenues generated

Question 21

Conceptual framework enhancing qualitative characteristics: (NEED TO MAKE PAPER FLASHCARD FOR THIS)

Answer 21

1. Comparability
2. Verifiability
3. Timeliness
4. Understandability