Intermediate Accounting Ch 1

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

SEC

What does it mean if information is cost effective?

The benefits of providing financial information exceed the costs of doing so.

What is the purpose of the audit report?

To add credibility to the financial statements.

The conceptual framework does not prescribe which of the following?

US GAAP

The abbreviation GAAP stands for generally accepted accounting _---_________- principles.

accounting

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

accrual accounting

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

accrual accounting

Criticisms of the objectives-oriented approach for accounting standards are (Select all that apply.)

an absence of rules may lead to intentional misuse of a standard. professional judgment may result in different treatments of similar transactions.

An essential assumption underlying GAAP is that all economic events can be identified with what?

an economic entity

Recognition refers to the process of

analyzing the financial statements.

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

asset

Accounting information is _______- if similar items are treated the same way among various companies highlighting similarities and differences between events and conditions.

comparable

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.

conceptual

Cost effectiveness is a ________ on the accounting choices a company makes

constraint

The Sarbanes-Oxley Act increases accountability of who?

corporate executives

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?

corporate management

Which of the following forms of business provide shares of stock as an ownership interest?

corporation

An essential assumption in accounting is that all economic events can be identified specifically with an individual economic ____

entity

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

ethics

Under the accrual accounting model, the measure of resources sacrificed is called

expense

Labor unions and creditors are examples of users of financial information.

external

The primary role of financial accounting is to provide useful financial information to users who are Blank______ to the business enterprise.

external

The accrual accounting model is best able to achieve the goal of predicting _______ cash flows.

future

The abbreviation GAAP stands for

generally accepted accounting principles.

Assuming that a business will operate indefinitely is referred to as the

going concern assumption

the four basic accounting assumptions (Select all that apply.)

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

The going concern assumption is critical to the measurement of assets because if a business were going to cease operations, its assets would be measured at their

liquidation values

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

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

recognition

for accounting information to be __________, it must possess predictive value and/or confirmatory value

relevance

True or false: A weakness of the monetary unit assumption is that the dollar is presumed to be stable over time and no adjustment is made for inflation.

true

We can think of the capital markets as a composite of all (Select all that apply.)

creditors investors

____ & ____ are willing to provide capital to a corporation only if they expect to receive more cash in return at some time in the future.

creditors & Investors

Financial accounting is chiefly concerned with providing information to various externalBlank _______ users.

external or outside

Which approach to standard setting emphasizes the use of professional judgment when choosing how to account for a transaction?

objectives oriented

What are the three primary forms of business organizations?

partnership corporation sole proprietorship

A corporation's shareholders will receive cash from their investment in which of the following ways?

periodic dividends

Which of the following are among the basic assumptions underlying U.S. GAAP? (Select all that apply.)

periodicity economic entity going concern monetary unit

According to the conceptual framework, for accounting information to be relevant, what qualities must it possess? (Select all that apply.)

predictive value confirmatory value

The accrual accounting model's measure of resources provided by business operations is called

revenues

Ethics deals with the ability to distinguish

right from wrong

Who serves as an independent intermediary to help ensure that management has appropriately applied GAAP in preparing the financial statements?

auditors

What accounting model produces a measure called net operating cash flow?

cash basis

What basis of accounting measures the difference between cash receipts and cash payments from transactions related to providing goods and services to customers during a reporting period?

cash basis

An enhancing qualitative characteristic of accounting information that allows users to better understand similarities and differences in the financial reports across different companies is called

comparability

External users of a company's financial information include (Select all that apply.)

credit-rating agencies. labor unions. banks.

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

decision usefulness

True or false: Cash basis accounting is the method used by most profit-oriented companies.

false

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

false

_________ accounting is chiefly concerned with providing information to external users.

financial

Proponents of objectives-based standards assert that

professional judgment minimizes sidestepping of rules

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

timing amount uncertainty

True or false: Capital markets foster the efficient allocation of resources.

true

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

true

True or false: The uncertainty of the return on an investment is also referred to as risk

true

Risk refers to the Blank______ of an investment.

uncertainty

In developing standards, the FASB considers the: (Select all that apply.)

views of key constituents economic transactions that standards will address

Before issuing an Accounting Standards Update, the FASB undertakes a series of information-gathering steps including (Select all that apply.)

written comments open hearings deliberations

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

Reliability Measurability Relevance Definition

The involvement of accounting professionals and management in accounting scandals resulted in Congress passing the Sarbanes-Oxley Act. What is the purpose of the Sarbanes-Oxley Act? (Select all that apply.)

Require accountability of corporate executives. Addresses conflicts of interests. Provide penalties for violators. Regulate auditors.

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

SEC