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