Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR Flashcards > Financial Reporting > Flashcards

Financial Reporting Flashcards

2
Q

What is the primary objective of accounting?

A

To measure income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the most authoritative set of accounting pronouncements?

A

The FASB Codification

All announcements fall under the Codification ‘umbrella’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the highest authority within the FASB codification?

A

FASB SFAS, APB Opinions, ARBs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the 2nd highest authority tier in the FASB codification?

A

FASB Technical Bulletins, SOPs, Industry Guides

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the lowest authority in the FASB codification?

A

Industry practices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Whose pronouncements are above industry practice in authority but below FASB Technical bulletins and industry guides within the FASB Codification?

A

Emerging Issues Task Force (EITF)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How does managerial accounting differ from financial accounting?

A

Managerial Accounting has a “timeliness” focus

Managerial Accounting does not follow GAAP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Which financial reports are required to be filed with the SEC?

A

Form 10K - Annual and Audited

Form 10Q - Quarterly and Reviewed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the focus of financial reports for individual companies?

A

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the two primary constraints of Financial Reporting?

A

Cost vs. Benefit

Materiality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the secondary constraits of Financial Reporting?

A

Consistency - Year vs. Year

Comparability - Company vs. Company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Describe ‘Relevance’ as a Qualitative Characteristic

A

Makes a difference to the user

Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the qualities of Faithful Representation?

A

Completeness - Nothing omitted that would impact the decision-making of a user

Neutrality - Information presented is without bias

Freedom from Error - No material errors or omissions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How does conservatism affect the recording of accounting transactions?

A

When an estimate is necessary due to uncertainty, conservatism chooses the best option that won’t overstate the financial position of the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is an accrual?

A

Earned (Revenue) or Incurred (Expense), but no Cash Receipt/Outlay yet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a deferral?

A

Cash Receipt/Outlay, but not Earned (Revenue) or Incurred (Expense)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is recognition in accounting?

A

When an item is recorded and included in the financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Describe fair value with respect to an asset

A

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What market assumptions are made in a fair value assessment?

A

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact – i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What items are included in a Level 1 input in the fair value hierarchy?

A

Price quotes or market prices

For example, NYSE or NASDAQ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What items are included in a Level 2 valuation input?

A

Interest rates

Prime rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What items are included in Level 3 inputs of the fair value hierarchy?

A

Unobservable inputs, such as assumptions or forecasts

Lowest priority for valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are acceptable valuation techniqures for fair value?

A

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are current assets?

A

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

26
Q

What are current liabilities?

A

Liabiities that will use current assets during the present operating cycle

27
Q

What is an accrued liability?

A

Expense that has been incurred, but not paid

Example: rents payable

28
Q

What is a deferred revenue?

A

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent – Landlord still must “perform” to earn it and is a liability until this happens

29
Q

When are revenues recognized?

A

When they have been earned; i.e. company has performed

30
Q

What is a gain?

A

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

31
Q

What is a loss?

A

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

32
Q

What is an operating cycle?

A

Average time it takes to turn materials or services into Cash

33
Q

What is the present value of future cash flows?

A

Valuation method - the current value of a future amount of money using a specific interest rate

34
Q

What is historical cost?

A

How much an asset cost - (net of depreciation and amortization)

35
Q

What is replacement cost?

A

How much it would cost to reacquire an asset today (Entrance Cost)

36
Q

What is a market cost?

A

The sale price of an asset (Exit Cost)

37
Q

What is Net Realizable Value?

A

Sale Price of an Asset - Selling/Disposal Fee

38
Q

When is royalty income recognized? How is it recognized?

A

Recognized when earned

If the royalty % is applied against net sales, then subtract the estimated return amount from the gross sales first and then apply the royalty rate

39
Q

When is revenue recognized in an installment sale?

A

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

40
Q

What is deferred gross profit?

A

Gross Profit that can’t be recognized until cash is received

D.GP = Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

41
Q

What is the cost recovery method?

A

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

42
Q

What is subscription revenue? How is it recorded?

A

Payment has been received, but performance is not complete.

As company performs, revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

43
Q

How are franchise revenues recorded?

A

Franchiser - Startup franchise fee revenue deferred until franchisee has completed substantial performance

Franchisee – Costs are deferred until corresponding revenue is recognized

44
Q

How do you calculate sales revenue starting from cash basis income?

A

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
– Beginning Accounts Receivable
= Sales Revenue on an Accrual Basis

45
Q

How do you calculate COGS starting from Cash Basis?

A

Mnemonic: CRAP-I

Cash Remitted (i.e. paid)
+Increase in Accounts Payable
–Increase in Inventory
=COGS on an Accrual Basis

46
Q

How are discontinued operations reported? When are they used?

A

Reported Net of Tax after Continuing Operations, but before Extraordinary Items

Company decides to cease operating a segment of its business

Includes Income (or loss) from the period plus the gain (or loss) from disposal

47
Q

What qualifies as an extraordinary item? How is it recorded?

A

Both unusual AND infrequent

Reported Net of Tax after Discontinued Operations

Note: Usual or Infrequent Items are reported as part of Continuing Operations

48
Q

What is constant dollar accounting?

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

49
Q

When are expenses recognized?

A

When they are incurred. Accrue if not yet paid.

50
Q

What are accrued expenses?

A

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

51
Q

When should impaired assets be written down to fair value and expensed?

A

Immediately.

52
Q

What major items should be classified under General & Administrative (G&A) expenses?

A

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense, not G&A

53
Q

What are business start-up costs?

A

One-time costs for opening a new business

Expensed as they are incurred

54
Q

When is interest not expensed?

A

Interest on projects (software) for internal use is not expensed, but is instead capitalized

55
Q

What are the major components of comprehensive income?

A

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

56
Q

What items are considered cumulative accounting adjustments?

A

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

57
Q

What is the purpose of a reclassification adjustment?

A

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

58
Q

Where is comprehensive income reported?

A

Reported in Stockholder’s Equity on Balance Sheet or in a Statement of Income and Comprehensive Income

Note: Earnings Per Share is not required for OCI

59
Q

What disclosures on accounting policies are required in financial statements?

A

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

60
Q

What are some major risks and uncertainties that must be disclosed?

A

Nature of Operations

Use of Estimates & listing of Significant Estimates

Concentration vulnerability

FAR Flashcards (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions