CH 1 Smartbook

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

force a change in the standard.

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

recognition.

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

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

False Reason: Accrual basis accounting is the accounting method used by most profit-oriented and not-for-profit entities.

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

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

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

Financial

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

Objectives-oriented

What is the primary function of financial accounting?

Provide useful information to users external to the business.

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

SEC

What does it mean if information is cost effective?

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

True or false: In the United States, sole proprietorships and partnerships outnumber corporations.

True

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

True

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

True

The conceptual framework does not prescribe which of the following?

U.S. GAAP

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

accrual

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

accrual accounting

What information regarding an entity's future cash flows are investors and lenders interested in? (Select all that apply.)

amount uncertainty timing

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.

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

asset

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

asset

If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic?

comparability

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.

What component of financial information helps investors analyze their prior assessments regarding a company's cash flow generating ability?

confirmatory value

Cost effectiveness is a(n) _____ on the accounting choices a company makes.

constraint

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 requirement that the economic activities of a business owner should be separated from the activities of the business is an example of which accounting assumption?

economic entity

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

economic transactions that standards will address views of key constituents

An essential assumption in accounting is that all economic events can be identified specifically with an individual economic _____. (Enter only one word.)

entity

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

ethics

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

external

The primary forms of business organization in the United States are the sole proprietorship, the _____ and the corporation.

partnership

Allowing the life of a company to be divided into artificial time periods in order to provide timely information is referred to as the _____ assumption. (Enter one word per blank)

periodicity

Which assumption allows the life of the company to be divided into artificial time periods to provide timely information?

periodicity

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

periodicity economic entity monetary unit going concern

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.)

recognition

For accounting information to be _____ , it must possess predictive value and/or confirmatory value. (Enter only one word.)

relevant

Ethics deals with the ability to distinguish _____ from _____ . (Only one word per blank)

right ; wrong

The uncertainty regarding an investment is also referred to as _____. (Enter one word per blank)

risk

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

written comments deliberations open hearings