FAR

Question 1

When is accrual based revenue recognized?

Answer 1

Accrual based revenue is recognized when realized or realizable and earned

Question 2

What is comprehensive income?

Answer 2

Periodic change in the equity of a business from non-owner sources

Question 3

What is the substance over form concept in accounting?

Answer 3

This is the principle that the financial position of a company (substance) is presented over the legal form

Question 4

What is the periodicity assumption?

Answer 4

The assumption that financial information is reported regularly to be both comparable and useful. Generally this is on an annual basis

Question 5

What are the constraints on financial reporting

Answer 5

cost, industry practices and conservatism

Question 6

What are financial statements?

Answer 6

Financial statements are the mean to communicate to external parties the financial position, results of operation and cash flow. Must adhere to GAAP

Question 7

What is the purpose of management accounting?

Answer 7

To give managers info necessary for decision making, planning and control. It does not have to follow GAAP

Question 8

What is the SEC’s role?

Answer 8

Authority to establish GAAP for issuers. SEC has delegated this authority to FASB and ensures compliance by requiring issuers to submit periodic reports. SEC is also responsible for enforcements and prosecution

Question 9

How is GAAP established

Answer 9

-SEC pronouncement
Through FASB - item is added to the agenda
- research & issue a discussion memo
- hold public hearing
- considering research and input they issue an exposure draft
- solicit comments and modify draft is necessary
- finalize through a vote