ACCT 301 Ch. 1 SmartBook Notes

The purpose of the FASB's conceptual framework in accounting is to:

establish objectives and fundamental concepts on which to base standards.

Conceptual framework

"accounting constitution", a coherent system of interrelated objectives na dfundamentals tha tlead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting.

As of July 1, 2009, the single source of nongovernmental US GAAP is found in the:

Accounting Standards Codification

What accounting model best meets the primary goal of user of financial reporting?

Accrual basis

Expense recognition is implemented by which of the following ways:

Cause-and-effect relationship, systematic and rational allocation, associating expenses and revenues in a specific period of time, in the period incurred

What are the three primary forms of business organizations?

Corporation, sole proprietorship, and partnership.

What business provides shares of stock as an ownership interest?

Corporations

In developing standards, the FASB considers the:

Economic transactions that standards will address and concerns and opinions of constituents.

T/F - The FASB codification project revised and updated US accounting standards with international accounting standards.

False

The private sector organization that is currently responsible for setting accounting standards in the US is the:

Financial Accounting Standards Board

Financial Accounting

Is chiefly concerned with providing information to external users.

Accrual Accounting

Is used by most profit-oriented businesses and not-for-profit entities.

The following are among the basic assumptions underlying US GAAP:

Monetary unit, going concern, periodicity, economic entity

Expense Recognition

Often matches revenues and expenses that arise from the same transactions or other events

FASB Accounting Standards Codification

Organizes all relevant accounting pronouncements in a searchable, online database.

Assets

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions.

The main focus of accounting information is to:

Provide useful info for decision making

What was the purpose of the FASB Accounting Standards Codification project?

Reorganize all relevant accounting pronouncements in US GAAP.

The_has the authority to set accounting standards for companies, but has delegated the task to the private sector.

SEC

The legal authority to set accounting andn reporting standards for companies whose securities are publicly traded lies within

SEC (security exchange commission)

Expense recognition is implemented by which of the following ways?

Systemic and rational allocation, associating expenses and revenues in a specific period of time, cause-and-effect relationship, in the period incurred.

Fair Value

The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Historical Cost Principle

The principle stating that the asset and liability measurements should be based on the amount given or received in the original transaction.

Measurement

The process of associating numberical amounts to the elements reported in financial statements.

Disclosure

The process of including additional pertinent information in the financial statements and accompanying notes .

What is the purpose of the audit report?

To add credibility to the financial statements.

T/F - In the US, sole proprietorships and partnerships outnumber corporations.

True

T/F - The FASB considers written comments from interested parties before issuing an Accounting Standards Update.

True

The conceptual framwork does not prescribe:

US GAAP

The financial reporting model used by the majority of profit oriented companies is:

accrual accounting

The primary focus of the qualitative characteristics of accounting information is:

decision usefulness

If the SEC (security exchange commission) does not agree with a standard issued by the private sector, it can:

force a change in the standard.

The accrual accounting model is best able to achieve the goal of predicting:

future cash flows.

The revenue/ expense approach focuses on the income statement because it relies on which accounting principles?

matching and revenue recognition

The four criteria used to determine if an item is recognized in the financial statements according to SFAC5

measureability, reliability, relevance, and definition

The primary purpose of financial reporting is to provide useful information for decision making to:

providers of capital

The AICPA is the national professional organization for certified professional:

public accountants.

Recognition

recording information in the basic financial statements

An emphasis is placed on proper income statement item recognition under what approach under US GAAP?

revenue/ expense approach

Historical Cost

states that an asset or liability should be recorded at the amount given or received in the exchange transaction.

Recording depreciation on fixed assets is an example of which approach to expense recognition?

systemic and rational allocation

What information regarding an entity's future cash flows are investors and lenders interested in?

timing, amount, and uncertainty

Before issuing and Accounting Standards Update, the FASB undertakes a series of information-gathering steps including:

written comments, open hearings, and deliberations