Intermediate Accounting Test 1

Question 1

Financial Accounting

Answer 1

Chiefly concerned with providing financial information to various external users.
Primary focus is on the financial information provided by profit-oriented companies to their present and potential investors and creditors.

Question 2

Financial Intermediaries

Answer 2

Financial analysts, stockbrokers, mutual fund managers, and credit rating organizations. Provide advice to investors and creditors and/or make investment-credit decisions on their behalf.

Question 3

Financial Reporting

Answer 3

Process of providing financial statement information to external users.

Question 4

Capital Markets

Answer 4

Mechanisms that foster the allocation of resources efficiently.

Question 5

Corporation

Answer 5

Dominant form of business organization that acquires capital from investors in exchange for ownership interest and from creditors by borrowing.

Question 6

Initial Market Transactions

Answer 6

Provide for new cash by the issuance of stocks and bonds by the corporation.

Question 7

Secondary Market Transactions

Answer 7

Provide for the transfer of stocks and bonds among individuals and institutions.

Question 8

Rate of Return on Stock Investment

Answer 8

(Dividends + Share price appreciation) Divided by Initial Investment

Question 9

Accrual Accounting

Answer 9

Measurement of the entity’s accomplishments and resource sacrifices during the period, regardless of when cash is received or paid.

Question 10

Cash Basis Accounting/Net Operating Cash Flow

Answer 10

Difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.

Question 11

International Accounting Standards Committee (IASC)

Answer 11

Formed in 1973 to develop global accounting standards.

Question 12

International Accounting Standards Board (IASB)

Answer 12

IASC reorganized in 2001 and called this. Dedicated to developing a single set of global accounting standards.

Question 13

Securities and Exchange Commission (SEC)

Answer 13

Responsible for setting accounting and reporting standards for companies whose securities are publicly traded.

Question 14

Sarbanes-Oxley Act (SOX)

Answer 14

Applies to public securities-issuing entities. Provides for the regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.

Question 15

Faithful Representation

Answer 15

Agreement between a measure and a real-world phenomenon that the measure is supposed to represent.

Question 16

Conservatism

Answer 16

Inconsistent with neutrality.

Question 17

Comparability

Answer 17

Helps users see similarities and differences between events and conditions.

Question 18

Verifiability

Answer 18

Implies that different knowledgeable and independent measures would reach consensus regarding whether information is a faithful representation of what it is intended to depict.

Question 19

Recognition

Answer 19

Process of admitting information into the financial statements.

Question 20

Disclosure

Answer 20

Process of including additional pertinent information in the financial statements and accompanying notes.

Question 21

Revenue/Expense Approach

Answer 21

Emphasize principles of recognizing revenues and expenses, with some assets and liabilities recognized as necessary to make the balance sheet reconcile with the income statement.

Question 22

Asset/Liability Approach

Answer 22

First recognize and measure the assets and liabilities that exist at a balance sheet date and recognize and measure the revenues, expenses, gains and losses needed to account for the changes in theses assets and liabilities from the previous measurement date.

Question 23

Auditors

Answer 23

Independent intermediaries who help ensure that management has appropriately applied GAAP in preparing the company’s financial statements.

Question 24

Certified Public Accountants (CPAs)

Answer 24

Licensed individuals who can represent that the financial statements have been audited in accordance with generally accepted auditing standards.

Question 25

Conceptual Framework

Answer 25

Deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting standards.

Question 26

Going Concern Assumption

Answer 26

In absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely.

Question 27

Periodicity Assumption

Answer 27

Allows the life of a company to be divided into artificial time periods to provide timely information.

Question 28

Full-Disclosure Principle

Answer 28

Financial reports should include any information that could affect the decisions made by external users.