Lesson 1 - Basic Concepts and Financial Statements

Question 1

According to FASB what are the fundamental characteristics?

Answer 1

Relevance & Reliablilty/Faithful Representation

Question 2

What is relevance?

Answer 2

Think Roger is PC - Predictive Value and Confirmatory Value

Question 3

What is Faithful Representation/Reliability?

Answer 3

Think Roger is on Fence - free from error, neutral, complete-

Question 4

According to FASB, what are the enhancing qualitative characteristics?

Answer 4

Think Roger is CUTV - Comparability, Understandability, Timeliness, Verifiability

Question 5

What are the constraints?

Answer 5

Cost/Benefit and Materiality

Question 6

What are the general accounting rules and concepts

Answer 6

Consistency, Conservatism, cost/benefit, matching, allocation, full disclosure, recognition, realization

Question 7

Consistency

Answer 7

same principle each year

Question 8

conservatism

Answer 8

considering all risks inherent in the business (accruing a contigent loss)

Question 9

cost/benefit

Answer 9

cost don’t exceed the benefit

Question 10

matching

Answer 10

recognize a cosnt as an expense in the same period as the benefit

Question 11

allocation

Answer 11

spreading a cost over more than one period

Question 12

full disclosure

Answer 12

providing all useful info in the F/S

Question 13

recognition

Answer 13

booking an item in the F/S

Question 14

Realization

Answer 14

converting noncash resources into cash or a claim to cash

Question 15

Fair Value of Non Financial Assets

Answer 15

Highest and Best Use

Question 16

Preferred Dividend Earned Ratio

Answer 16

Total Earnings / total preferred dividends

Question 17

FASB Process for Setting Accounting Standards

Answer 17

FASB can seek information about accounting and reporting issues by holding public forums usually based on exposure draft

Question 18

Valuation for property contributions to non-profit organizations

Answer 18

Fair value on date donation is made

Question 19

No. of Days Sales in Average Inventories for the current year

Answer 19

Determine sales/day or COGS divided by sales days; determine average inventory; take average inventory divided by cost of sales per day

Question 20

financial capital

Answer 20

concept that all changes in the value of an asset or liability should be recognized as they occur - comprehensive income

Question 21

physical capital

Answer 21

concept that gains and losses related to assets and liabilities should be recognized sold or settled; net income

Question 22

Average number of days to collect accounts receivable

Answer 22

average accounts receivable divided by average sales per day

Question 23

inventory turnover

Answer 23

cogs divided by average inventory

Question 24

fair value of an asset when no principal market exists

Answer 24

the most advantageous market