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69 Cards in this Set

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What is the first level of the conceptual framework?
Objectives of financial reporting
What are the 3 components of Relevance?
1) Feedback value
2) Predictive value
3) Timeliness
When are expenses recognized?
When the work or product actually makes its contribution to revenue
Increases in equity from peripheral or incidental transactions:
Gains
In providing information with the qualitative characteristics that make it useful, two overriding constraints that must be considered are:
The cost-benefit relationship and materiality
Depreciation and amortization policies are justifiable and appropriate because of the _____.
Going concern assumption
Anything under _____ is generally considered not material.
5% of net income
What are the secondary qualities of accounting information?
Comparability and consistency
The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods:
Periodicity assumption
When should revenue be recognized?
At the time of the sale
Providing information that is of sufficient importance to influence the judgment and decisions of an informed user is required by the:
Full disclosure principle
Which constraint states, when in doubt, choose the solution that will be least likely to overstate assets and net income?
Conservatism
TRUE/FALSE:

There are no exceptions to the revenue recognition rule that revenue is only recognized at the time of sale.
False

In certain circumstances revenue may be recognized during production, at the end of production or after the sale once cash is received.
For information to be _____, it needs to have predictive value, feedback value, and be timely.
Relevant
TRUE/FALSE:

Information that has been measured and reported in a similar manner for different enterprises is considered comparable.
True
Assumption which suggests that the economic life of a business can be divided into artificial time periods such as a month, quarter or year:
Periodicity assumption
The conceptual framework contains how many Statements of Financial Accounting Concepts that related to financial reporting for business enterprises?
6
Which assumption makes the current – noncurrent classification of assets and liabilities on the balance sheet useful?
Going concern assumption
Which level of the conceptual framework is devoted to recognition and measurement concepts?
Third level
The assumption that allows the merging of a parent company and its subsidiaries for financial reporting purposes is the:
Economic entity assumption
What are the primary qualities of accounting information?
Relevance and reliability
The conceptual framework for financial reporting consists of how many levels?
3
What are the 3 components of reliability?
1) Neutrality
2) Representational faithfulness
3) Verifiability
What are the 4 constraints of financial reporting?
1) cost-benefit
2) materiality
3) industry practice
4) conservatism
Determining which alternative provides the most useful information for decision-making purposes:
Decision usefulness
What are the 3 levels of the conceptual framework?
1st Level = Basic Objective

2nd Level = Qualitative Characteristics and Basic Elements

3rd Level = Recognition and Measurement Concepts
Identify the element or elements associated:

Increases ownership interest.
-Investment by owners
-Comprehensive income
According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on?
The needs of the users of the information
What are the 4 qualitative characteristics?
1) Relevance
2) Reliability
3) Comparability
4) Consistency
Identify the element or elements associated:

Arises from peripheral or incidental transactions.
-Gains
-Losses
Identify the element or elements associated:

Declares and pays cash dividends to owners.
Distribution to owners
When a company applies the same accounting treatment to similar events from period to period:
Consistency
Identify the element or elements associated:

Obligation to transfer resources arising from a past transaction.
Liabilities
To be _____, accounting information must be capable of making a difference in a decision.
Relevant
Identify the element or elements associated:

Increases in net assets in a period from nonowner sources.
Comprehensive income
Identify the element or elements associated:

Items characterized by future economic benefit.
Assets
Third level assumption that the company is to last long enough to fulfill its objectives and commitments:
Going concern
According to the FASB conceptual framework, an entity’s revenue may result from:
A decrease in a liability from primary operations
Identify the element or elements associated:

Decreases assets by purchasing the company’s own stock.
Distribution to owners
Identify the element or elements associated:

Changes in equity during the period, except those from investments by owners and distributions to owners.
Comprehensive income
Third level assumption that money is the common denominator:
Monetary unit
Identify the element or elements associated:

Equals increase in net assets during the year, after adding distributions to owners and subtracting investments by owners.
Comprehensive income
Identify the element or elements associated:

Residual interest in the net assets of the enterprise.
Equity
Third level assumption that the company keeps its activity separate from its owners and other businesses:
Economic entity
Identify the element or elements associated:

Increases assets through sale of product.
Revenue
Identify the element or elements associated:

Arises from income statement activities that constitute the entity’s ongoing major or central operations.
-Revenue
-Expenses
Identify the assumption:

Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation.
Monetary unit
Providing information that is of sufficient importance to influence the judgment and decisions of an informed user:
Full disclosure
Third level assumption that the company can divide its economic activities into time periods:
Periodicity
The price, established by the exchange transaction:
Historical cost
The economic activities of Identify the assumption:

General Electric and its subsidiaries are merged for accounting and reporting purposes.
Economic entity
States that efforts (expenses) should be matched with accomplishments(revenues) whenever it is reasonable and practicable to do so.
Matching principle
Identify the assumption:

Walgreen Co. reports current and noncurrent classifications in its balance sheet.
Going concern
Revenue recognition generally occurs when:
1) When realized/realizable
2) When earned

EXCEPTIONS:
1) During Production
2) At End of Production
3) Upon Receipt of Cash
Identify the assumption:

The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.
Periodicity
What is more useful than the historical cost principle?
Fair value information
Full disclosure is provided through what 3 things?
Provided through:

1) financial statements
2) notes to the financial statements
3) supplementary information
Identify the constraint:

Wildcat Company does not disclose any information in the notes to the financial statements unless the value of the information to users exceeds the expense of gathering it.
Cost-benefit
When in doubt, choose the solution that will be least likely to overstate assets and income:
Conservatism
Identify the principle:

Yahoo, Inc. recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.
Matching principle
An item is considered _____ if its inclusion or omission would influence or change the judgment of a reasonable person.
Material
Identify the constraint:

Zip’s Farms, Inc. reports agricultural crops on its balance sheet at market value.
Industry practice
Identify the principle:

Norfolk Southern Corporation reports revenue in its income statement when it is earned instead of when the cash is collected.
Revenue recognition principle
Identify the constraint:

Crimson Tide Corporation does not accrue a contingent lawsuit gain of $650,000.
Conservatism
The peculiar nature of some industries and business concerns sometimes requires departure from basic accounting theory:
Industry practice
Identify the principle:

Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.
Full disclosure principle
Identify the constraint:

Sun Devil Corporation expenses the cost of wastebaskets in the year they are acquired.
Materiality
The cost of providing some information must be weighed against the benefits that can be derived from using it:
Cost-benefit
Identify the principle:

Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair market value is greater.
Historical cost principle