Module 1
Identifying
is the accounting function that involves observing business transactions and events
Identify the accounting principle or assumption that best reflects each situation. -A business is accounted for separately from other business entities and its owner.
Business entity assumption
Identify the accounting principle or assumption that best reflects each situation. -Record expenses incurred to generate the revenue reported.
Expense recognition (matching) principle
(Internal or External User?) Creditor
External user
(Internal or External User?) Customer
External user
(Internal or External User?) How did the nonprofit organization use our donations?
External user
(Internal or External User?) SEC regulator
External user
(Internal or External User?) Shareholder
External user
(Internal or External User?) Which companies are at risk of strike by its labor union?
External user
(Internal or External User?) Which companies are under IRS investigation for tax fraud?
External user
(Internal or External User?) Which companies file financial statements with the SEC?
External user
Identify the accounting principle or assumption that best reflects each situation. -A company reports details behind financial statements that would impact users' decisions.
Full disclosure principle
Identify the accounting principle or assumption that best reflects each situation. -Financial statement details that would impact decisions are often disclosed in the footnotes.
Full disclosure principle
Identify the accounting principle or assumption that best reflects each situation. -Financial statements reflect the assumption that the business continues operating.
Going-concern assumption
(Internal or External User?) Human resources executive
Internal user
(Internal or External User?) Purchasing manager
Internal user
(Internal or External User?) Research and development executive
Internal user
(Internal or External User?) Service manager
Internal user
(Internal or External User?) What are the costs of our service to customers?
Internal user
(Internal or External User?) Which inventory items are out of stock?
Internal user
(Internal or External User?) Will we earn enough revenue from developing this new product?
Internal user
Identify the accounting principle or assumption that best reflects each situation. -Accounting information is based on actual cost.
Measurement (cost) principle
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -Company computers are not password protected.
Opportunity
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -The business has no cameras or security devices at its warehouse.
Opportunity
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -Managers are told to make extreme cuts in expenses.
Pressure
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -Officers are told to report rising income or risk layoffs.
Pressure
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -Salespeople are expected to make unrealistic sales numbers.
Pressure
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -A worker feels that fellow employees are not honest.
Rationalization
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -A worker sees other employees regularly take inventory for personal use.
Rationalization
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -Payroll manager feels she is greatly underpaid.
Rationalization
Identify the fraud triangle risk factor (Opportunity, Pressure, or Rationalization) in each situation. -Top management believes competitors overstate income.
Rationalization
Identify the accounting principle or assumption that best reflects each situation. -Revenue is recognized when goods or services are provided to customers.
Revenue recognition principle
Identify the accounting principle or assumption that best reflects each situation. -The life of a company can be divided into time periods, and useful reports can be prepared for those periods.
Time period assumption
Recordkeeping
is the recording of transactions and events, either manually or electronically
External users
require accounting information to decide whether to lend money to or invest in a company
Recording
requires that we input, measure, and log transactions and events
