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Intermediate Accounting > Test 1 > Flashcards

Test 1 Flashcards

1
Q

FASB

A

Financial Accounting Standards Board

The main organization that establishes and improves financial accounting and reporting standards

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2
Q

CPA

A

Certified Public Accountant

Someone who has met rigorous educational and experience requirements and has passed an extremely difficult exam. They generally offer tax, management, and auditing consultation services.

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3
Q

GAAP

A

Generally Accepted Accounting Principles

The principles, standards, and procedures that are given substantial authoritative support. They are widely accepted because of their universal application.

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4
Q

SOP

A

Statements of Position

Statements issued by the AICPA that are generally in line with emerging problems that have yet to be addressed by the SEC & FASB.

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5
Q

FASAC

A

Financial Accounting Standards Advisory Board

An organization that works with the FASB to select task forces, project priorities, and consult about issues.

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6
Q

FAF

A

Financial Accounting Foundation

The organization that chooses the members of the FASB and its advisory councils. They also fund their activities and exercise general oversight.

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7
Q

APB

A

Accounting Principles Board

The committee of public accountants that replaced the CAP, but was later replaced by the FASB. It’s opinions are still a primary source of GAAP.

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8
Q

ARB

A

Accounting Research Bulletins

CAPs official protocol that unless superseded represents the current GAAP.

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9
Q

CAP

A

Committee on Accounting Principles

A committee of practicing CPAs that came before the establishment of the FASB.

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10
Q

AICPA

A

Accounting Institute of Certified Public Accountants

A national organization of certified public accountants. Replaced by CAP.

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11
Q

Indicate the major types of pronouncements issued by the FASB and the purposes of each of these pronouncements.

A

Standards and Interpretations: the standards recognized as GAAP. The interpretations are modifications/extensions to the standards that are considered official.

Financial Accounting Concepts: used so there are cohesive concepts in place to help with the introduction of new accounting standards. They ensure problems are solved in line with general concepts that were previously deemed appropriate.

Technical Bulletins: documents used to widely disclose statewide policies and procedures that have been passed based on other types of pronouncements.

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12
Q

Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard.

A

Financial Accounting Standards Advisory Council

Due Process is used and means everyone has the opportunity to respond to new standards before they become official standards.

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13
Q

What is the present role of AICPA in the rule making environment?

A

The AICPA no longer gives accounting guidance. Instead, it develops and grades the CPA exams.

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14
Q

Why did the CAP & APB fail? How has the FASB taken steps to avoid failure?

A

CAP- failed because it had no clearly defined, structured form of accounting principles

APB- did not carry out the consequences of accounting abuses. Lots of opposition from CPA firms while handling accounting issues.

FASB- offers full-time membership, greater autonomy, greater independence, and a broader scope of representation. It also uses Due Process.

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15
Q

What are the two committees of the AICPA that established accounting principles before the establishment of the FASB?

A

Committee on Accounting Procedures (CAP)

Accounting Principles Board (APB)

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16
Q

What are the steps of the Due Process System of the FASB?

A
  1. Topics identified and placed on the Board’s agenda
  2. Research and analysis conducted and preliminary views of pros and cons issued
  3. Public hearing on proposed standard
  4. Board evaluates research and public response and issues exposure draft
  5. Board evaluates responses and changes exposure draft if necessary. The final standard is issued.
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17
Q

What is expected of the users of financial reports?

A

Users are expected to possess a reasonable understanding of accounting information, financial statements, business, and economic concepts. They also must be willing to study and interpret the information with reasonable diligence.

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18
Q

What is the purpose of financial accounting?

A

To provide information for external users (investors and creditors)

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19
Q

Increases Ownership Interest

A

Investment by the owner; comprehensive income

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20
Q

Obligation to transfer resources arising from a past transaction

A

Liabilities

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21
Q

Arises from peripheral or incidental transactions

A

Gains and Losses

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22
Q

Issuance of interim reports is an example of what primary ingredient of relevance.

A

Timeliness

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23
Q

Two primary qualities that make accounting information useful for decision-making purposes.

A

Relevance and Faithful Representation

24
Q

Neutrality is an ingredient of this primary quality of accounting information.

A

Faithful Respresentation

25
Q

An item is not recorded because its effect on income would not change a decision.

A

Materiality

26
Q

Four qualitative characteristics that are related to both relevance and faithful representation.

A

Comparability, Timeliness, Verifiability, and Understandability

27
Q

Predictive value is an ingredient of this primary quality of information.

A

Relevance

28
Q

Requires a high degree of consensus among individuals on a given measurement.

A

Verifiability

29
Q

Ignores the economic consequences of a standard rule.

A

Neutrality

30
Q

Imperative for providing comparisons of a company from period to period.

A

Comparability and Consistency

31
Q

Quality of information that confirms users’ earlier expectations

A

Confirmatory Value

32
Q

Qualitative characteristics being employed when companies in the same industry are using the same accounting principles.

A

Comparability

33
Q

Each enterprise is kept as a unit distinct from its owner or owners.

A

Economic Entity Assumption

34
Q

Agricultural companies use fair value for purposes of valuing cost

A

Industry Practices or Fair Value Principle

35
Q

Repair tools are expensed when purchased.

A

Fair Value

36
Q

Intangible assets are capitalized and amortized over periods benefitted.

A

Expense Recognition Principle

Patent, Copyright, etc.

37
Q

Financial information is presented so that investors will not be misled.

A

Full Disclosure Principle

38
Q

Fair value changes are not recognized in the accounting records.

A

Measurement Principal/Historical Cost

39
Q

Includes all changes in equity during a period, except those resulting from investments by and distributions to owners.

A

Comprehensive Income

40
Q

Increases assets during a period through sale of product

A

Revenues

41
Q

Residual interest in the assets of the enterprise after deducting its liabilities

A

Equity

42
Q

Arises from Income Statement activities that constitute the entity’s ongoing major or central operations.

A

Revenues and Expenses

43
Q

Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

A

Comprehensive Income

44
Q

Items characterized by service potential or future economic benefit.

A

Assets

45
Q

Increases in net assets in a period from non-owner sources

A

Comprehensive Income, Increased Revenues, and Gains

46
Q

A company charges its sales commission costs to expense

A

Expense Recognition Principle

47
Q

Goodwill is recorded only at time of purchase

A

Measurement/Fair Value Principle

48
Q

An allowance for doubtful accounts is established

A

Fair Values

49
Q

Reporting must be done at defined time values

A

Periodicity Assmption

50
Q

The use of consolidated statements is justified

A

Economic Entity Assumption

51
Q

Rationale for accrual accounting

A

Revenue Recognition
and
Expense Recognition Principles

52
Q

All important aspects and bond indentures are presented in financial statements.

A

Full Disclosure Principle

53
Q

Revenue is recorded at the point of sale.

A

Revenue Recognition Principle

54
Q

All significant post balance sheet events are reported

A

Full Disclosure Principle

55
Q

Declares and pays cash dividends to owners.

A

Distribution to Owners

Intermediate Accounting (1 decks)

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