Overview of US GAAP

Question 1

What does generally accepted accounting principles (GAAP) address?

Answer 1

Recognition, measurement, and disclosure

Question 2

What body developed generally accepted accounting principles (GAAP)?

Answer 2

The Financial Accounting Standards Board (FASB)

Question 3

Which agency enforces generally accepted accounting principles (GAAP)?

Answer 3

The Securities and Exchange Commission (SEC).

Question 4

When are expenses recognized under accrual accounting?

Answer 4

Expenses are recognized when incurred, regardless of the period of cash payment.

Question 5

When is revenue recognized under accrual accounting?

Answer 5

Revenues are recognized when earned and collection is reasonably assured, regardless of the period of cash collection.

Question 6

What are the seven key components of the general-purpose external financial report?

Answer 6

1. Income statement
2. Balance sheet
3. Statement of cash flows
4. Statement of retained earnings
5. Statement of comprehensive income
6. Footnote disclosures
7. Auditor’s opinion

Question 7

What is the classification of assets that are in the form of cash, or will be converted into cash, or will be consumed within one year or the operating cycle of the business, whichever is longer?

Answer 7

The classification is current assets.

Question 8

What is the Accounting Principles Board?

Answer 8

The entity that published 31 opinions, some of which are now part of the Codification.

Question 9

What are long-term assets?

Answer 9

Assets that are not classified as current assets. Long-term assets are reported on the balance sheet and represent a company’s property, equipment, and other capital assets (reduced by depreciation) expected to be usable for more than one year.

Question 10

What purpose does the Financial Accounting Standards Board (FASB) Accounting Standards Codification serve?

Answer 10

The FASB Accounting Standards Codification is the sole source of authoritative U.S. generally accepted accounting principles for nongovernmental entities, except for the Securities and Exchange Commission guidance.

Question 11

What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?

Answer 11

1. Other comprehensive basis of accounting
2. Cash basis
3. Income tax basis
4. Regulatory accounting principles

Question 12

An accrual is created when

Answer 12

the economic event occurs first

Question 13

A deferral account is created when

Answer 13

the cash activity occurs first

Question 14

An accounting concept that indicates that a item is recorded on the financial statements is

Answer 14

recognition

Question 15

The economic concept that indicates that cash is paid or received is

Answer 15

realization

Question 16

What comprises United States generally accepted accounting principles (GAAP)?

Answer 16

The Financial Accounting Standards Board (FASB) Accounting Standards Codification comprise authoritative U.S. GAAP for publicly traded companies. Securities and Exchange Commission (SEC) pronouncements are also GAAP.

Question 17

What is the American Institute of Certified Public Accountants (AICPA)?

Answer 17

The AICPA is the professional organization for participating CPAs.

Question 18

What are the first three steps the Financial Accounting Standards Board (FASB) uses when issuing a new accounting standard?

Answer 18

1. Considers whether to add a project to its agenda in consultation with the Financial Accounting Foundation (FAF).
2. Conducts research.
3. Holds a public hearing on the topic.

Question 19

What does the Securities and Exchange Commission (SEC) do?

Answer 19

It administers the U.S. securities laws, most notably the Securities Act of 1933 and the Securities Exchange Act of 1934 as well as others.

Question 20

What are the final three steps in the standard-setting process?

Answer 20

1. Evaluate research and comments from interested parties and issue an exposure draft.
2. Solicit additional comments.
3. Finalize new accounting guidance and issue
4. Accounting Standards Updates (ASUs).

Question 21

How do user groups influence the outcome of the Financial Accounting Standards Board (FASB) standards?

Answer 21

Users influence standards by providing input during the due process procedure.

Question 22

What is the role of the Financial Accounting Advisory Council (FASAC)?

Answer 22

The FASAC provides guidance on major policy issues, project priorities, and the formation of task forces.

Question 23

What is the main purpose of the Securities and Exchange Commission (SEC)?

Answer 23

The main purpose of the SEC is to promote efficient allocation of capital by maintaining open, orderly, and fair securities markets.

Question 24

What is the Financial Accounting Standards Board (FASB)?

Answer 24

The FASB establishes financial accounting standards for business entities.

Question 25

What is the role of the Financial Accounting Foundation (FAF)?

Answer 25

The FAF exercises oversight of the Financial Accounting Standards Board (FASB), appoints the members of the FASB, and ensures funding.