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42 Cards in this Set

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What is the primary focus of financial accounting?
On the information needs of investors and creditors.
What are GAAP?
Generally Accepted Accounting Principles are a dynamic set of both broad and specific guidelines that companies should follow when measuring and reporting financial information
What organization has the power and responsibility for setting accounting and reporting standards (principles) in the U.S.?
The SEC has the power and responsibility for setting accounting and reporting standards (principles) in the US for companies whose securities are publicly traded, but always has delegated the responsibility, not the power, to the private sector (currently the FASB)
How do auditors contribute to the decision usefulness of financial statements?
Auditors provide credibility to financial statements and disclosure notes by verifying that they are presented fairly in conformity with GAAP. The auditors opinion as to the fairness of the financial statements is expressed in the audit report.
What are the two primary decision-specific qualities that make accounting information useful?
Relevance and reliability
What are the ingredients of relevance?
1. Predictive value and/or feedback value

2. Timeliness
Describe predictive value and/or feedback value
Ingredient of relevance

Information helps predict future events and confirms prior expectations
Describe timeliness
Ingredient of relevance

The information must be available before the decision is made
What are the ingredients of reliability?
1. Verifiability
2. Representational faithfulness
3. Neutrality
Describe Verifiability
Ingredient of reliability

Implies a consensus among different measures
Describe representational faithfulness
Ingredient of reliability

Exists when there is agreement between measure and a real-world phenomenon that the measure is supposed to represent
Describe neutrality
Ingedient of reliability

Assumes the information being relied on does not favor any particular group of companies nor influence behavior in any specific way
What are the four basic assumptions underlying GAAP?
1. Economic entity assumption
2. Going concern assumption
3. Periodicity assumption
4. Monetary unity assumption
What are the four key broad accounting principles that guide accounting practice?
1. Historical cost principle
2. Realization principle
3. Matching principle
4. Full disclosure principle
The process of providing financial information to external decision makers is referred to as
financial accounting
Financial statements generally include
1. Income statement (statement of operations)
2. Balance sheet (statement of financial position)
3. Statement of cash flows
4. Statement of shareholders' equity
The primary objective of financial reporting is to provide information
1. useful for decision making
2. that helps predict cash flows
3. about economic resources, claims to resources, and changes in resources and claims
GAAP include what pronouncements
1. Statements of Financial Accounting Standards
2. Accounting Research Bulletins
3. Accounting Principles Board Opinions
The SEC exerts a continuing influence on the establishment of accounting standards. It does so by
monitoring the development of GAAP within the accounting profession and using its stature to influence that development
The document that sets forth fundamental concepts on which financial accounting and reporting standards will be based are
Statements of Financial Accounting Concepts
The two primary decision-specific qualities that make accounting information useful are
Relevance and reliability
Relevance requires that information possess predictive and/or feedback value and be
timely
The qualitative characteristic that means there is agreement between a measure and a real-wold phenomenon is
representational faithfulness
What is considered a practical constraint on the qualitative characteristics
timeliness
Assets are
1. probable future economic benefits
2. obtained or controlled by a particular entity as a
3. result of past transactions
Liabilities are
1. probable future sacrifices of economic benefits arising from
2. present obligations of a particular entity to transfer assets or provide services to other entities in the future as a
3. result of past transactions or events
The underlying assumption that presumes a company will continue indefinitely is
going concern
The underlying assumption that assumes that the life of a company can be divided into artificial time periods is
periodicity
Revenues are recognized when
1. the earnings is judged to be complete or virtually complete
AND
2. there is reasonable certainty as to the realization of the asset to be received
The primary objective of the matching principle is to
recognize expenses in the same period as the related revenues
The FASB issues which types of pronouncements
1. Standards
2. Interpretations
3. Financial Accounting Concepts
4. Technical Bulletins
The major financial accounting standard body is the
Financial Accounting Standards Board (FASB)
True or False
The FASB develops accounting standards independent of public, business, and political pressures
False
The FASB DOES NOT develop accounting standards independent of public, business, and political pressures
True or False
The function of financial accounting is to identify, measure, and communicate financial information about economic entities to interested parties.
True
The function of financial accounting is to identify, measure, and communicate financial information about economic entities to interested parties.
True or False
Accrual accounting provides a better indication of ability to generate cash flows than does information limited to the financial effects of cash receipts and cash payments.
True
Accrual accounting provides a better indication of ability to generate cash flows than does information limited to the financial effects of cash receipts and cash payments.
True or False
The primary objective of accrual basis accounting is the measurement of income
True
The primary objective of accrual basis accounting is the measurement of income
True or False
GAAP include both standards set by various rule making bodies and certain accounting practices that have evolved over time
True
GAAP include both standards set by various rule making bodies and certain accounting practices that have evolved over time
EdgarScan is a website interface
to retrieve filings to the SEC by publicly held companies
When a company submits its annual report filing to the SEC, it uses
Form 10-k
The Provision for income taxes is found in the
Consolidated Statement of Income
Footnotes to a company's financial statements
are an integral part of a company's financial statements
Typically, the first financial statement footnote does what
summarizes a company's significant accounting practices