ACG 3103 CH 1

Which of the following describe the purpose of the Conceptual Framework? (SFAC) (Select all that apply.) -It prescribes the nature, function, and limits of financial accounting and reporting. -It provides structure and direction to financial accounting and reporting. -It sets forth the underlying concepts of accounting that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties. -It summaries U.S. accounting standards.

-It prescribes the nature, function, and limits of financial accounting and reporting. -It provides structure and direction to financial accounting and reporting. -It sets forth the underlying concepts of accounting that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties. GAAP summarizes U.S. accounting standards

In general, revenue is recognized when A contract has been signed. The sales price has been collected. A purchase order has been received. A good or service has been delivered to a customer.

A good or service has been delivered to a customer.

Fernblatt Inc. recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Fernblatt's accounting approach is an example of: Matching. Cash basis accounting. Accrual accounting. Periodicity.

Accrual accounting.

GAAP includes which of the following pronouncements: Statements of Financial Accounting Standards. Accounting Research Bulletins. Accounting Principles Board Opinions. All of the choices are correct.

All of the choices are correct.

hich of the following is not a factor in encouraging high-quality financial reporting? The Sarbanes-Oxley Act. Auditors who attest to a company's financial statements. Internal control systems. All of these are factors encouraging high-quality financial reporting.

All of these are factors encouraging high-quality financial reporting.

Which of the following methods of measurement is allowed under U.S. GAAP? Current cost Fair value Historical cost All of these methods are allowed

All of these methods are allowed U.S GAAP allows historical, net realizable value, current cost, present value and fair value.

Notes to the company's financial statements are: Unimportant information that do not belong in the four basic financial statements. Not required by U.S. GAAP. An integral part of the company's financial statements. Removed before the financial statements are released to the public.

An integral part of the company's financial statements.

Match the correct term with their definition: A. Definition B. Measurability C. Relevance D. Reliability _________ means the information about it is capable of making a difference in user decisions _________ means the information is representationally faithful, verifiable, and neutral _________ means the item has a relevant attribute that is measurable with sufficient reliability _________ means the item meets the definition of an element of financial statements

C. Relevance D. Reliability B. Measurability A. Definition

Match the correct terms to their definition: A. Assets B. Equity C. Expenses D. Liabilities E. Revenues __________ are inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing central operations. ___________ are outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing central operations. __________ are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. __________ are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. __________ is the residual interest in the assets of an entity that remains after deducting its liabilities.

E. Revenues C. Expenses A. Assets D. Liabilities B. Equity

The underlying assumption that presumes a company will continue indefinitely is: Periodicity. Going concern. Economic entity. Monetary unit.

Going concern.

In general, revenue is recognized when the earnings process is virtually complete and: Goods or services are transferred to the customer. A purchase order is received. Cash is collected. Production is completed.

Goods or services are transferred to the customer.

Statements of Financial Accounting Concepts issued by the FASB -Are subject to approval of the SEC. -Represent GAAP. -Identify the conceptual framework within which accounting standards are developed. -Have been superseded by SFASs.

Identify the conceptual framework within which accounting standards are developed.

The SEC exerts a continuing influence on the establishment of accounting standards. It does so primarily by: -Monitoring the development of GAAP within the accounting profession and using its stature to influence that development. -Exercising its statutory authority to prescribe external financial reporting requirements. -Allying with the AICPA to lobby the efforts of the FASB. -Providing auxiliary funding to the FASB.

Monitoring the development of GAAP within the accounting profession and using its stature to influence that development.

Which of the following characteristics does not describe a liability? Result of a past transaction. Probable future sacrifices. Present obligation. Must be legally enforceable.

Must be legally enforceable.

The underlying assumption that assumes that the life of a company can be divided into artificial time periods is: Periodicity. Going concern. Economic entity. Monetary unit.

Periodicity.

The asset/liability approach: -Emphasizes principles for recognizing revenues and expenses, and not assets and liabilities. -Recognizes amounts in the income statement necessary to account for the changes in assets and liabilities from the previous measurement date. -Discourages the use of fair values in accounting measurement. -None of the choices are correct.

Recognizes amounts in the income statement necessary to account for the changes in assets and liabilities from the previous measurement date. Under the asset/liability approach, we first recognize and measure the assets and liabilities that exist at a balance sheet date and, secondly, recognize and measure the revenues, expenses, gains and losses needed to account for the changes in these assets and liabilities from the previous measurement date.

In depreciating the cost of an asset, accountants are most concerned with Full disclosure. Recognizing expense in the appropriate period. Conservatism. Recognizing revenue in the appropriate period.

Recognizing expense in the appropriate period.

The two primary decision-specific qualities that make accounting information useful are: Verifiability and representational faithfulness. Predictive value and feedback value. Cost effectiveness and materiality. Relevance and faithful representation.

Relevance and faithful representation.

Which of the following characteristics does not describe an asset? Probable future economic benefits. Controlled by an entity. Requires the receipt of cash. Result of a past transaction.

Requires the receipt of cash.

Which of the following is a financial statement provided to investors? Statement of shareholders' equity Statement of audit report Statement of investments Statement of management discussion

Statement of shareholders' equity

The documents that set forth fundamental concepts on which financial accounting and reporting standards will be based are: Statements of Financial Accounting Standards. Statements of Financial Accounting Concepts. Accounting Principles Board Opinions. All of the choices.

Statements of Financial Accounting Concepts. Statements of Financial Accounting Standards and Accounting Principles Board Opinions are actual accounting standards.

True or false: Financial accounting is primarily concerned with providing financial information to external users.

True

Which organizations provide financial information to external users? financial intermediaries charitable organizations profit-oriented businesses creditors

charitable organizations profit-oriented businesses

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

labor unions. credit-rating agencies. banks.

Financial reporting is the process of closing the temporary accounts providing information to outside users preparing proforma financial statements and notes reporting current period income to the board of directors

providing information to outside users

Which of the following are external users of financial information? suppliers household government agencies creditors investors

suppliers household government agencies creditors investors