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CPA Review > Mod 9A: Basic Concepts > Flashcards

Mod 9A: Basic Concepts Flashcards

0
Q

FASB is stands for?

A

Financial Accounting Standards Board.

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1
Q

As of July 1, 2009 this body became the single source for US GAAP.

A

FASB’s Accounting Standards Codification (ASC).

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2
Q

FASB issues Accounting Standards Updates (ASUs) to update these?

A

The Accounting Standards Codification (ASC).

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3
Q

What is the objective of financial reporting?

A

To provide financial information about the reporting entity that is useful to existing or potential investors, leaders, and other creditors in marking decisions about providing resources to the entity (SFAC 8).

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4
Q

What is the cost-benefit constraint of qualitative characteristics?

A

If the benefits of information do not exceed the cost of providing that information, it would not be reported.

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5
Q

Fundamental Qualitative Characteristics (3)?

A

Relevance, Decision Usefulness, Faithful Representation.

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6
Q

Relevant information has (2)?

A

Predictive Value - requires that information be used to predict future outcomes.

Confirmatory Value - confirms or changes prior evaluations.

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7
Q

Faithful representation has (3)?

A

Completeness
Neutrality
Free from Error

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8
Q

Why is accrual accounting used over cash basis accounting?

A

Accrual accounting provides a better indication of future cash flows than cash basis because it records transaction with cash consequences (future cash flows) as they occur instead of when cash is actually received.

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9
Q

5 ways of measuring assets & liabilities (SFAC 5)

A 
Historical cost
Current cost
Current market value
Net realizable (settlement value)
Present (or discounted) value of future CF
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10
Q

Historical Cost

A

PP&E and inventories

Amount of cash or its equivalent, paid to acquire.

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11
Q

Current cost

A

Amount of cash or equivalent that would have to be paid if acquired currently.

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12
Q

Current market value

A

Amount of cash or its equivalent obtained by selling asset.

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13
Q

Net realizable (settlement) value.

A

Short-term receivables and some inventories are reported as.

Non-discounted amount of cash or equivalent that the asset is expected to be converted in due course of business less direct costs.

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14
Q

Present (or discounted) value of future cash flows

A

Long-term receivables

Present value of future cash inflows into which an asset is expected to be converted in due course of business less present values of cash outflows.

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15
Q

These items are used to compute Earnings (4)

A

Revenues, Expenses, Gains & Losses.

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16
Q

How does Comprehensive Income differ from Earnings?

A

It is Earnings adjusted for cumulative accounting adjustments and other non-owner changes in Equity.

Such as foreign currency translation adjustments.

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17
Q

These items are used to compute Earnings (4)

A

Revenues, Expenses, Gains & Losses.

18
Q

How does Comprehensive Income differ from Earnings?

A

It is Earnings adjusted for cumulative accounting adjustments and other non-owner changes in Equity.

Such as foreign currency translation adjustments.

19
Q

Recognition is the process of?

A

Formally recording or incorporating an item into the financial statements as an asset, liability, revenue, expense.

Matching - simultaneous recognition of revenues with expenses that are related directly or jointly to the same transactions.

20
Q

FASB defines Present Value as?

A

The current measure of an estimated future cash inflow or outflow, discounted at an interest rate for the number of periods between today and the date of the estimated cash flow.

21
Q

Income is a measure of?

A

Management’s efficiency in combining the factors of production into desired goods and services.

22
Q

Under the accrual basis of accounting, revenue is usually recognized?

A

At Point of Sale

23
Q

What are the three exceptions to the general Point of Sale revenue recognition rule?

A

During Production basis

Completion-of-Productions basis

Cash Collection basis

25
Q

Accounting method for During Production basis of Recognition?

A

Percentage-of-Completion

(Long-term constuction, property, or service contract)

(Dependable estimates of extent of progress and cost to complete, Reasonable assurance of collectibility of contract price)

25
Q

What is the Accounting Method for the Cash Collection basis of Recognition?

A

Installment and cost recovery methods.

Absence of reasonable basis for estimating degree of collectibility

26
Q

What is the accounting method of Completion-of-Production basis of Recognition?

A

Net realizable value

Immediate marketability at quoted prices, Unit interchangeability, Difficulty of determining costs

27
Q

Product costs are?

A

Costs that can be associated with particular sales (e.g. , cost of sales).

28
Q

Period costs are?

A

Cost that are not particularly conveniently assignable to a product. They become expenses due to the passage of time by:

Immediate recognition of future benefit cannot be measured (adversting).

Systematic and rational allocation if benefits are produced in certain future periods (asset depreciation).

29
Q

What is Accrual-Basis recognition precede (lead to)?

A

Cash receipt / expenditure

Revenue - recognition of revenue earned, but not received.

Expense- recognition of expense incurred, but not paid.

30
Q

What does Defferal of cash receipt / expenditures precede (lead to)?

A

Accural-basis recognition

Revenue- postponement of recognition of revenue, cash is received, but revenue is not earned.
Expense- postponement of recognition of expense, cash is paid, but expense is not inclurred.

31
Q

A Deferral postpones recognition of revenue and expense by?

A

Placing the amount in liability or asset accounts (i.e. Prepaid rent).

32
Q

The initial Franchise fee is recognized as revenue by the franchiser when?

A

Only upon substantial performance of their initial service obligation.

33
Q

The Deposit Method for recording a Real Estate transaction states that payments received are recorded?

A

As a liability until the contract is canceled or the sale is achieved.

34
Q

Under the Reduced Profit Method for recording Real Estate transactions the seller recognizes?

A

A portion of the profit at the time of the sale with the remaining portion recognized in future periods.

Profit recognized at the time of the sale is determined by calculating the PV of buyer’s receivable and applying a formula. Reduced profit recognized at the time of the sale is the gross profit less the PV receivable.

35
Q

Multiple-Deliverable Revenue Arrangements have 2 conditions that must be met to be considered a separate unit of accounting:

A

The delivered item has value on a stand-alone basis.

The arrangement includes a right to return the delivered item.

36
Q

Software products that DO NOT require significant production, modification, or customization should recognize revenue when all the following criteria are met (4):

A

(1) Persuasive evidence of an arrangement exists.
(2) Delivery has occured.
(3) Vendor’s fee is fixed or determinable
(4) Collectibility is probable.

37
Q

IFRS Stands for?

A

International Financial Reporting Standards (IFRS)

38
Q

IASB stands for?

A

International Accounting Standards Board (IASB).

39
Q

The IASB framework states that Income includes (2)?

A

Both Revenue and Gains.

40
Q

IASB framework’s two criteria required to incorporate an item into the income statement or statement of financial position (2)?

A

Meets the definition of an Element and satisfies the criteria for Recognition.

41
Q

Common Stock is a?

Current Asset
Non-current Asset
Current Liability
Non-current Liability
Owner's Equity
Contra Asset
Contra Equity

Revenue
Expense
Contra Revenue

A

Owner’s Equity

42
Q

Allowance for uncollectible account is a?

Current Asset
Non-current Asset
Current Liability
Non-current Liability
Owner's Equity
Contra Asset
Contra Equity

Revenue
Expense
Contra Revenue

A

Contra asset

CPA Review (3 decks)

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