module 2-financial accounting

Question 1

financial statements can be misleading if

Answer 1

• expenses are reported as omitted from the financial statement
• liabilities and their related expenses are omitted from the financial statements
• reported revenues are recorded prematurely.

Question 2

bookkeeping

Answer 2

systematic gathering of financial information

Question 3

financial accounting

Answer 3

reporting summary financial information to people outside your organization

Question 4

managerial accouting

Answer 4

reporting confidential financial information to people inside your organization

Question 5

4 types of accounting

Answer 5

1. bookkeeping
2. financial accounting
3. managerial accounting
4. income taxes

Question 6

Accountants prepare financial statements such as

Answer 6

• an income statement,
• a statement of stockholders’ equity,
• a balance sheet, and
• a statement of cash flows.

Question 7

Balance sheet

Answer 7

list of organizations assets and an organizations liabilities (provided to investors )
given at a specific point in time

Question 8

Income statement

Answer 8

report how much money a company is making (provided to investors)

Question 9

External users of financial accounting

Answer 9

1. Owners and prospective owners
2. Creditors, lenders, and suppliers.
3. employees and their unions.
4. Customers
5. Governmental units
6. General public

Question 10

Generally accepted accounting principles GAAP

Answer 10

a general set of commonly followed standards and principles for financial accounting

Question 11

Financial Accounting Standards Board (FASB)

Answer 11

is a private, not- for- profit organization whose primary purpose is to develop GAAP within the United states in the publics interests.

Question 12

Governmental accounting standards Board (GASB)

Answer 12

it issues statements on accounting and financial reporting in the governmental area.

Question 13

Securities and Exchange Commission (SEC)

Answer 13

Federal agency that holds primary responsibility for enforcing the federal securities laws and regulating the securities industry. It works closely with FASB in the development of accounting standards`

Question 14

American accounting Association (AAA)

Answer 14

Has sought to encourage research and study at a theoretical level into the concepts, standards, and principles of accounting

Question 15

Financial accounting is:

Answer 15

“is historical, reporting what has happened in the past”

Question 16

4 basic principles of GAAP

Answer 16

1. Historical cost principle
2. Revenue Recognition Principle
3. Matching principle
4. Full disclosure Principle

Question 17

Historical Cost

Answer 17

Requires companies to account and report based on original costs rather than fair market value for most assets and liabilities

Question 18

Revenue Recognition Principle

Answer 18

The principle requires companies to record when revenue is realized and earned not when cash is received

Question 19

Matching principle

Answer 19

Expenses have to be matched with revenues as long as it is reasonable to do so.

Question 20

Full Disclosure

Answer 20

the principle requires amount and kind of information disclosed to be decided based on trade off- analysis

Question 21

5 basic constraints

Answer 21

1. Objectivity principle
2. Materiality Principle
3. Consistency Principle
4. Conservatism
5. Cost-benefit relationship

Question 22

Internacional Accounting Standards committee (IASC)

Answer 22

Foundation was established as an independent, not for profit orga. to develop a globally accepted financial reporting standards

Question 23

International Financial reporting standards

Answer 23

a common global financial language for business affairs that is understandable and comparable across international boundaries

Question 24

Differences between IFRS and GAAP

Answer 24

GAAP is rules based and IFRS is principle based.

Question 25

Similarities between IFRS and GAAP

Answer 25

• Both are guiding principles that help in the preparation and presentation of a statement of accounts.
• Both IFRS and GAAP provide relevance, reliability, transparency, comparability, and understandability of the financial statement.

Question 26

4 basic assumptions of GAAP

Answer 26

1. accounting entity
2. going concern
3. monetary unit
4. time- period principle