Chapter 1 - Smartbook

A code or moral system that provides criteria for evaluating right and wrong is referred to as

ethics.

Disclosure is the process of including additional pertinent information in.

- Financial statements - Notes to the financial statements

Select the four criteria used to determine if an item is recognized in the financial statements according to SFAC 5.

- Reliability - Relevance - Definition - Measurability

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

- amount - uncertainty - timing

Which of the following are among the basic assumptions underlying U.S. GAAP?

- going concern - monetary unit - economic entity - periodicity

Which of the following are among the basic assumptions underlying U.S. GAAP?

- going concern - periodicity - economic entity - monetary unit

Four Basic Accounting Assumptions

- identify the denomination in which reporting occurs - identify the entity being reported on - assume the entity will continue to exist - identify the frequency of reporting

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

- matching - revenue recognition

Which of the following are among the basic assumptions underlying U.S. GAAP?

- monetary unit - economic entity - going concern - periodicity

Which of the following are among the basic assumptions underlying U.S. GAAP?

- periodicity - monetary unit - going concern - economic entity

According to SFAC 5, the four criteria that must be met for an item to be recognized in the basic financial statements are

- the information about the item is reliable. - the item has relevant attributes that are measurable. - the information about the item is relevant to decision making. - The item meets the definition of an element.

In developing standards, the FASB considers the:

1. Economic transactions that standards will address 2. Concerns and opinions of constituents

The four basic accounting assumptions

1. assume the entity will continue to exist 2. identify the entity being reported on 3. identify the denomination in which reporting occurs 4. identify the frequency of reporting

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

1. open hearings 2. deliberations 3. written comments

What are the three primary forms of business organizations?

1. partnership 2. sole proprietorship 3. corporation

The financial reporting model used by the majority of profit oriented companies is _________________ accounting. (Enter only one word.)

Accrual

Which of the following models is best in helping predict future cash flows?

Accrual accounting

Which accounting model best meets the primary goal of users of financial reporting?

Accrual basis

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events are referred to as ________________ .

Assets

A code or moral system that provides criteria for evaluating right or wrong is referred to as ______________________. (Enter one word per blank)

Ethics

Expense recognition often matches ________________ and______________ that arise from the same transaction.

Expenses and Revenues

Financial accounting is chiefly concerned with providing information to various _____________________ users. (Enter only one word.)

External

True or False: The primary function of financial accounting is to provide useful financial information to users who are internal to the business.

False Rationale: The primary function of financial accounting is to provide useful information to external users.

It is the responsibility of _________________ to apply Generally Accepted Accounting Principles in preparation of the company's financial statements. (Enter only one word.)

Management

Who has the responsibility to appropriately apply GAAP when preparing financial statements?

Management

What is the primary function of financial accounting?

Provide useful information to users external to the business.

The process of admitting or recording an item into the basic financial statements is referred to as

Recognition

The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the

SEC

The conceptual framework does not prescribe which of the following?

U.S. GAAP.

What financial reporting model is used by most profit-oriented businesses and not-for-profit entities?

accrual accounting

A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events is a(n)

asset.

The "Accounting Constitution", a coherent system of interrelated objectives and fundamentals that lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting is referred to as the ____________________ framework. (Enter only one word.)

conceptual

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

decision usefulness

The overriding objective in the hierarchy of qualitative characteristics of financial reporting information is

decision usefulness.

The process of including additional pertinent information in the financial statements and accompanying notes is referred to as ________________.

disclosure

Measurement is the process of associating numerical amounts to the __________________ reported in financial statements.

elements

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

establish objectives and fundamental concepts on which to base standards.

If the SEC does not agree with a standard issued by the private sector, it can

force a change in the standard.

Disclosure refers to the process of

including additional information in the financial statements and notes.

Expenses are ________________ to revenues from the same transaction.

matched

The process of associating numerical amounts to the elements in the financial statements is called

measurement.

The process of associating numerical amounts to the elements of the financial statements is referred to as

measuring, measurement, or measure

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

providers of capital

The process of admitting information into the financial statements is referred to as _________________________. (Enter only one word.)

recognizing, recognition, recognize

Recognition refers to the process of

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

What element of the financial statements is described by the following definition? "Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions."

Assets

True or False: The FASB considers written comments from interested parties before issuing an Accounting Standards Update.

True The FASB has an extensive due process including open hearings, deliberations, and written comments.

True or false: The conceptual framework does not prescribe GAAP.

True The conceptual framework provides an underlying foundation for accounting standards.