Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

ACC 3301 > TEST ONE > Flashcards

TEST ONE Flashcards

Ch. 1, 2, 3, 4, & 5

1
Q

definition

Accounting

A

the process of identifying, measuring and communicating financial information about economic entities to permit informed judgments and decision by users of information

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

definition

Generally Accepted Accounting Principles (GAAP)

A

a set of principles decided by FASB to provide the most useful information at the least cost to a wide variety of reasonably informed users, so they can make good decisions (make sure the information is presented fairly, clearly, and completely)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

definition

Conceptual Framework

A

a coherent system of interrelated objectives and fundamental concepts that prescribes the nature, function, and limits of financial accounting and reporting (expected to lead to consistent guidance)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Hierarchy of GAAP Standard Setting Authority

A
  1. Congress
  2. SEC
  3. CAP, APB, FASB

FASB is the only active organization (1973 to now)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what it stands for/years active

CAP

A

Committee on Accounting Procedures; they issued accounting research bulletins; 1939-1959

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

APB

A

Accounting Principles Board; released APB opinions; 1959-1973

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

FASB

A

Financial Accounting Standards Board; they issue accounting standards updates; 1973 to now

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Organization of the FASB

A

Financial Accounting Foundation (FAF) appoints and funds:
* Financial Accounting Standards Board (FASB)’s 7 members
* Financial Accounting Standards Advisory Council (FASAC) approx. 35 members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

definition and purpose

SEC

A

Securities Exchange Commission; established by Congress to oversee the organized stock exchanges; has the power to establish and enforce accounting standards for public companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does FASB issue to update GAAP?

A

FASB issues Accounting Standards Updates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Steps the FASB takes in the creation of a financial accounting standards update:

A
  1. Research
  2. Public hearing
  3. Exposure draft
  4. Accounting standards update
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Titles of relevant statements of financial accounting concepts

there’s four of them

A
  1. objectives
  2. qualitative characteristics
  3. elements
  4. recognition and measurement
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Objectives should provide information about the reporting entity:

A
  1. useful to existing/potential investors, lenders, etx, in making decisions about providing resources to the entity
  2. to help present/future investors, lenders, etc. assess the amount, timing, and uncertainty of future cash inflows of the entity
  3. about the resources of the entity, claims against the entity, and how efficiently jobs are divided up so that objectives 1&2 can be satisfied
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Qualitative Characteristics include:

A
  1. objective
  2. constraint
  3. pervasive criterion
  4. fundamental qualities
  5. enhancing qualities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Ingredients of fundamental qualities:

A

Relevance or Faithful Representation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

one of two fundamental qualities

Relevance

definition of relevance

A

to be relevant, accounting information must be capable of making a difference in a decision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

one of two fundamental qualities

Faithful Representation

definition of faithful representation

A

correspondence between numbers or descriptions and events they represent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

relevance is one of two fundamental qualities

ingredients of relevance

A
  • predictive value=forecast the outcome of past, present, and future events
  • confirmatory value=confirm or correct prior expectation
  • materiality=an item is material if its inclusion or omission would influence or change the decision of a user of the financial information
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

faithful representation is one of two fundamental qualities

ingredients of faithful representation

A
  • completeness=all of the information necessary for faithful representation is provided
  • neutrality=absence of bias
  • free from error=no errors or omissions in the description of the financial information (doesn’t imply total freedom from error)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Enhancing qualities include:

A
  • comparability=consistency in accounting treatment
  • verifiability=occurs when there’s a consensus among independent observers
  • timeliness=available before losing capacity to influence the decision
  • understandability=allows reasonably informed users to gain significance of information
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Elements of financial statements

A

measured as point in time (assets, liabilities, equity)
measured over a period of time (investments by owners, distributions to owners, comprehensive income, revenues, expenses, gain, losses)

first 3 are changed by the following 7 (inter-relation=articulation)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Recognition and measurement

A

four basic assumptions and 4 basic principles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

4 basic assumptions

A
  1. economic entity assumption
  2. going concern assumption
  3. monetary unit assumption
  4. time period assumption
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

definition

economic entity assumption

4 basic asssumptions

A

distinguish each organization from its owner and any other business unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
# definition going concern assumption | 4 basic assumptions
the business will continue to run indefinitely unless there's evidence to the contrary
26
# definition monetary unit assumption | 4 basic assumptions
the common denominator is money; assumes stability
27
# definition time period assumption | 4 basic assumptions
divide economic activities into arbitarary time periods to make current evaluations of operations (ex: monthly, quarterly, yearly)
28
4 basic principles
1. measurement principle 2. revenue recognition principle 3. expense recognition (matching) principle 4. full disclosure principle
29
# definition measurement principle | 4 basic principles
the basis on which amounts in the financial statements are determined; two measurement bases: 1. historical cost=transactions measured at the acquisition price 2. fair value=the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
30
# definition revenue recognition principle | 4 basic principles
revenue should be recognized by a company in the accounting period in which it has satisfied its agreement with the customer to provide a good/service
31
# definition expense recognition (matching principle) | 4 basic principles
expenses should be matched with revenue or recorded in the same accounting period as the revenue that was earned through that expense
32
# definition full disclosure principle | 4 basic principles
provide all information necessary to present a complete picture of the performance and position of the company (the info may be qualitative or quantitative and in one of three places: within the body of financial statements, in the notes to the financial statements, or as supplementary information)
33
# definition general ledger
a book containing the entire group of accounts for the company; each account is on a separate page and usually assigned an account number
34
# definition posting (to the ledger)
the process of transferring the totals from the journals to the individual accounts in the ledger and the sub-accounts in the subsidiary ledgers
35
# definition & purpose subsidiary ledger
a group of sub-accounts that in total equal the primary (control) account in the general ledger; (purpose is to organize the detail items comprising the control account in the general ledger and to free the general ledger of the volume of detail)
36
# definition & purpose trial balance
a list of all the accounts in the ledger and their debit or credit balances at the end of the period; (purpose is to test the accuracy of the postings to the ledger by determining if the general ledger is in balance; debits=credits) | DOES NOT prove that there are no errors in the individual acc. balances
37
# definition adjusting journal entries
the mechanism by which an accrual basis (as opposed to cash basis) is achieved; only prepaid items & accrued items require adjusting entries!
38
# definition & explanation time-period assumption
the economic activities of a company are divided into artificial time periods (monthly, quarterly, yearly); (most accurate way to measure the results of a company's activities would be to measure them at the time of the company's eventual liquidation, however, management, investors, creditors, and other interested parties can't and won't wait indefinitely for that information) ## Footnote this is why the life of the company is broken into smaller units called accounting periods!
39
# definition cash basis of accounting
revenues are recorded in the period when cash is received and expenses are recorded in the period when cash is paid | cash basis IS NOT GAAP!
40
# definition accrual basis of accounting
revenues are recorded in the period when they are earned & expenses are recorded in the period when they are incurred to earn that revenue, without regard to the time of receipt or payment of cash | accrual basis IS GAAP!
41
# definition revenue recognition principle
revenues are recorded in the accounting period when they are earned (the period in which the goods were sold or the services performed), without regard to the time of receipt of cash
42
# definition expense recognition (matching) principle
expenses are recorded (matched) in the same accounting period as the revenues that they helped to generate, without regard to the time of payment of cash
43
# definition & examples prepaid (deferred) items
items for which the cash part of the transaction came early ## Footnote either: cash was received before the revenue was earned (unearned revenue) OR cash was paid before the expense was incurred (prepaid assets, buildings, equipment)
44
# definition & examples accrued items
items for which the cash part of the transaction came late ## Footnote either: cash was received after the revenue was earned (receivable) OR cash was paid after the expense was incurred (payable)
45
# definition closing entries
are posted to the appropriate general ledger accounts; revenue, expense, and dividend accounts are all closed to retained earnings!
46
# definition the post-closing trial balances
final trial balance that ensures that all the closing entries were recorded correctly ## Footnote there should be balances only in the balance sheet accounts since the balances in all the revenue, expense, and dividend accounts should be zero after closing to retained earnings!
47
# definition reversing entries
the exact opposite of the adjusting entry made in the previous period
48
# finish the blank cash basis of accounting; revenue is recognized...
when cash is received
49
# finish the blank cash basis of accounting; expense is recognized...
when cash is paid
50
# finish the blank cash basis of accounting; timing of payment...
is critical
51
# finish the blank cash basis of accounting; OK for GAAP?...
no
52
# finish the blank cash basis of accounting; adjusting entries?
no
53
# finish the blank cash basis of accounting; advantages...
easy, fast
54
# finish the blank cash basis of accounting; disadvantages...
revenue recognition & matching principles are violated!
55
# finish the blank accrual basis of accounting; revenue is recognized...
when revenue is earned
56
# finish the blank accrual basis of accounting; expense is recognized...
when matched with related revenue
57
# finish the blank accrual basis of accounting; timing of payment...
is irrelevant
58
# finish the blank accrual basis of accounting; OK for GAAP?
yes
59
# finish the blank accrual basis of accounting; adjusting entries?
yes
60
# finish the blank accrual basis of accounting; advantages...
better indication of actual performance
61
# finish the blank accrual basis of accounting; disadvantages...
more complicated
62
# remember! adjusting entries are required because...
of the revenue recognition principle & the matching (expense) principle!
63
types of accounts used in adjusting entries...
1. prepaid asset/expense 2. unearned revenue/revenue 3. payable/expense 4. receivable/revenue ## Footnote 1&2 are prepaid (deferred) items; 3&4 are accrued items!
64
3 steps in preparing closing entries...
1. transfer credit balances from revenue accounts to retained earnings 2. transfer debit balances from expense accounts to retained earnings 3. transfer dividend account balance to retained earnings
65
3 steps in preparing adjusting entries FOR PREPAID ITEMS...
1. determine what the account balance currently is for the prepaid item by referring to the original entry that was made at the time when the cash was received or paid 2. determine what the account balances should be at the end of the period 3. prepare an adjusting entry for the difference between what the balance currently is & what it should be
66
3 steps in preparing adjusting entries FOR ACCRUED ITEMS...
1. recognize that since no cash has been received or paid & that since cash is the normal sign to record a transaction, no entry has yet been made to record the event (ie no orig. JE) 2. determine what the account balances should be at the end of the period 3. prepare an adjusting entry for the difference between what the balance currently is (zero) & what it should be
67
# remember! when the original entry is made to an ASSET account...
there is NO reversing entry!
68
# remember! when the original entry is made to an EXPENSE account...
there IS a reversing entry!

ACC 3301 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions