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10 Cards in this Set

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What are the goals of financial reporting?
1. Timing: Economic events and accounting entires often occur at different times.
2. Measurement: GAAP often permits different methods to be used to recognize economic events.
3. Recognition: Many economic events are not recognized in financial statements.
FASB has sought to establish a conceptional framework with the hope of creating a system of consistent financial reporting objectives and concepts.

The framework defines the qualitative characteristics of accoutning information:
* Relevance: To be relevant, accounting information must be capable of making a difference in a decision.
- "Timeliness" is a primary ingredient of relevance as information loses value rapidly in teh financial world.

* Reliability: To be reliable, accounting information must be verifiable, have representational faithfulness and be reasonably free of error and bias (this is known as "neutrality").

* Consistency: Accounting information is consistent if the same accounting principles are used from period to period. Therefore, consistency allows comparisons across different periods for the same company.

* Comparability: Accounting information is comparable if information has been measured and reported in a similar manner for different companies.
The four basic types of adjusting entires are made to:
1. Convert assets to expenses.
2. Convert liabilities to revenue.
3. Accrue unpaid expenses.
4. Accrue unrecorded revenue.
The concept of "________" allows accountants to use estimated amounts and even to ignore other accounting principles if these actions will not have a material effect on financial statements.
Materiality
A material effect is:
one that might reasonably be expected to influence the decisions made by users of financial statements. Thus accountants may count for immaterial items and events in the easiest and most convenient manner.
Accounting information can be useful in decision-making if it possesses high degrees of either relevance or reliability, not necessarily both. True or false?
True. Historical cost measurements may result in infomration that is less relevant but more reliable. FOr example, the book value of a plant asset may be highly reliable, but a more relevant measure ofr users would be its projected discounted future cash flows. However, the uncertainty of projected discounted future cash flows makes the measurement less reliable.
How often are public companies in the US required to file earnings reports in the regular course of business?
Quarterly.
Which two authorities are primarily responsible for establishing generally accepted accounting principles in the United States?
The Financial Accounting Standards Board is a private sector board that consists of seven members. The Securities and Exchange Commission is a government agency. Both groups have primary responsibility for establishing generally accepted accounting principles. However, the SEC delegates much of its authority for establishing generally accepted accounting princples to the Financial Accounting Standards Board.
Who is responsible for preparing the company's financial statements?
Management.
Accounting information can be useful in decision-making if it possesses high degrees of either relevance or reliability, not necessarily both. True or false?
True. Historical cost measurements may result in information that is less relevant but more reliable. For example,t he book value of a plant asset may be highly reliable, but a more relevant measure for users would be its projected discounted future cash flows. However, the uncertainty of projected discounted future cash flows makes the measurement less reliable.