CH 2 SmartBook

Companies are not allowed to switch back and forth between alternative accounting methods from year to year because of the _______ concept.

Consistency

Which of the following concepts/principles relate to financial statements? Matching Conservatism Objectivity Consistency Full disclosure Accrual Materiality

Consistency Full disclosure Materiality Conservatism

Which of the following items are normally included as key components of a corporation's annual report? The report of the external auditor's examination of the financial statements A five-year (or longer) summary of key financial data The notes to the financial statements A corporate structure chart showing line and staff reporting responsibilities of all key personnel employed by the reporting firm. The reporting firm's operating budget for the next fiscal year.

The report of the external auditor's examination of the financial statements A five-year (or longer) summary of key financial data The notes to the financial statements

In the horizontal model representation of the financial statements, the arrow going from net income to stockholders' equity means that net income affects the _____ _____ account within stockholders' equity.

Retained earnings

The matching concept means that:

Expenses incurred to generate revenues must be matched to revenues earned for any given period

The concept that refers to the presumption that the entity will continue to operate in the future is known as the:

Going concern concept

Most assets are reported on the balance sheet based on their:

Original (historical) cost

Accrual accounting results in:

Recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred

The balance sheet is sometimes called the:

Statement of financial position

The investments by and distributions to owners during a reporting period are reported on the:

Statement of stockholders equity

In the horizontal model representation of the financial statements, _____.

The arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings

A corporation's annual report contains the reporting firm's financial statements and each of the following key components, except:

The reporting firm's operating budget for the next fiscal year

Understating assets and/or overstating liabilities when making judgments and estimates is driven by which of the following concepts/principles?

The statement of cash flows reports the entity's cash flows during a period. The statement of stockholders' equity reports the financial position at the end of a period.

A firm prepares comparative financial statement so that _____.

The users of the data can easily spot changes in the firm's financial position and in its results of operations

If total liabilities are equal to $8,000 and total stockholders' equity is equal to $4,000, then:

Total assets are equal to $12,000

Which concept/principle supports the notion that for companies reporting their financial statements in United States dollars, no adjustments are made for the effects of inflation?

Unit of measurement

In the United States the dollar is ____ __ _______

unit of measurement

Most assets are not recorded at their current market values because of the limitations imposed by the _____________ principle.

Cost

ost assets are not recorded at their current market values because of the limitations imposed by the _____ principle.

Cost

The ______ principle refers to the fact that transactions are recorded at their _______ cost of the entity as measured in dollars.

Cost; original

A = L + SE is called the

Accounting equation

The four concepts/principles that relate to bookkeeping procedures and the accounting process are:

Accounting period, matching, revenue recognition, and accrual

Which of the following concepts/principles relate to bookkeeping procedures and the accounting process? Materiality Accrual Accounting period Full disclosure Matching Revenue recognition Accounting entity

Accrual Accounting period Matching Revenue Recognition

An entity's financial position at the end of a reporting period is reported on the:

Balance sheet

Which of the following are the required financial statements under generally accepted accounting principles and auditing standards? Multiple select question. Balance sheet Income statement Statement of net asset value Statement of cash flows Statement of changes in stockholders' equity Statement of operating earnings

Balance sheet Income statement Statement of cash flows Statement of changes in stockholders' equity

Financial statements that show a column for the current year and the prior year are known as _______ financial statements

Comparative

Understating assets and/or overstating liabilities when making judgments and estimates is driven by which of the following concepts/principles?

Conservatism