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Acct II Ch 2 uiz 1 and 2
Ch 2 quiz 1 & 2 intermediate
60
Accounting
02/13/2011

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Cards

Term
T or F
Companies consider only quantitative factors in determining whether an item is material.
Definition
False
Term
T or F
Revenues, gains, and distributions to owners all increase equity.
Definition
False
Term
T or F
The conceptual framework for accounting has been discovered through empirical research.
Definition
False
Term
T or F
The economic entity assumption means that economic activity can be identified with a particular legal entity
Definition
False
Term
T or F
The IASB has issued a conceptual framework that is broadly consistent with that of the United States.
Definition
True
Term
T or F
Users of financial statements are assumed to have no knowledge of business and financial accounting matters by financial statement preparers.
Definition
False
Term
T or F
Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Definition
True
Term
T or F
Revenues are realizable when assets received or held are readily convertible into cash or claims to cash.
Definition
True
Term
T or F
Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements.
Definition
True
Term
T or F
The first level of the conceptual framework identifies the recognition and measurement concepts used in establishing accounting standards.
Definition
False Recognition and measuremetn are the 3rd level
Term
T or F
The idea of consistency does not mean that companies cannot switch from one accounting method to another.
Definition
True
Term
T or F
A conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
Definition
True
Term
According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of
Definition
Relevance, Yes; Reliability, No
Term
A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle?
Definition
Historical cost.
Term
Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between
Definition
timeliness and verifiability.
Term
During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of
Definition
. Objectivity, No; Periodicity, Yes
Term
Financial information exhibits the characteristic of consistency when
Definition
accounting entities give accountable events the same accounting treatment from period to period.
Term
Information is neutral if it
Definition
is free from bias toward a predetermined result.
Term
Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting?
Definition
. Historical cost.
Term
The accounting principle of matching is best demonstrated by
Definition
associating effort (expense) with accomplishment (revenue).
Term
The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the
Definition
conservatism constraint.
Term
The overriding criterion by which accounting information can be judged is that of
Definition
usefulness for decision making.
Term
Valuing assets at their liquidation values rather than their cost is inconsistent with the
Definition
historical cost principle.
Term
What is a primary objective of financial reporting as indicated in the conceptual framework?
Definition
Provide information that is helpful to present and potential investors, creditors, and other users in assessing the amounts, timing, and uncertainty of future cash flows.
Term
What is a primary objective of financial reporting as indicated in the conceptual framework?
Definition
Provide information that is helpful to present and potential investors, creditors, and other users in assessing the amounts, timing, and uncertainty of future cash flows.
Term
What is conservatism?
Definition
When in doubt, recognizing the option that is least likely to overstate assets and income.
Term
When products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash" is a definition of
Definition
realized.
Term
Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price?
Definition
Full disclosure.
Term
Which basic assumption may not be followed when a firm in bankruptcy reports financial results?
Definition
Going concern assumption.
Term
Which of the following is not a basic assumption underlying the financial accounting structure?
Definition
Historical cost assumption.--Historical cost is a principal not an assumption
Term
Which of the following practices may not be an acceptable deviation from recognizing revenue at the point of sale?
Definition
A. Upon receipt of cash.
B. During production.
C. Upon receipt of order.<--------
D. End of production.
Term
Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles?
Definition
President's letter to shareholders.
Term
Which of the following elements of financial statements is not a component of compre-hensive income?
Definition
A. Revenues
B. Distributions to owners <------
C. Losses
D. Expenses
Term
According to Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability?
Definition
A. Materiality
B. Understandability
C. Usefulness
D. All of these <---------
Term
According to the FASB conceptual framework, earnings
Definition
A. are the same as comprehensive income.
B. exclude certain gains and losses that are included in comprehensive income. <-----------
C. include certain gains and losses that are excluded from comprehensive income.
D. include certain losses that are excluded from comprehensive income.
Term
Company A issuing its annual financial reports within one month of the end of the year is an example of which ingredient of primary quality of accounting information?
Definition
Timeliness.
Term
A soundly developed conceptual framework of concepts and objectives should
Definition
A. increase financial statement users' understanding of and confidence in financial reporting.
B. enhance comparability among companies' financial statements.
C. allow new and emerging practical problems to be more quickly solved.
D. all of these.<--------
Term
In the conceptual framework for financial reporting, what provides "the why"--the goals and purposes of accounting?
Definition
Objectives of financial reporting
Term
Issuance of common stock for cash affects which basic element of financial statements?
Definition
Equity.
Term
Representational faithfulness is an ingredient of which primary quality of information?
Definition
Reliability.
Term
The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the
Definition
matching principle.
Term
The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is
Definition
reliability.
Term
Valuing assets at their liquidation values rather than their cost is inconsistent with the
Definition
historical cost principle.
Term
Under Statement of Financial Accounting Concepts No. 5, which of the following, in the most precise sense, means the process of converting noncash resources and rights into cash or claims to cash?
Definition
Realization
Term
What is a purpose of having a conceptual framework?
Definition
A. To enable the profession to more quickly solve emerging practical problems.
B. To provide a foundation from which to build more useful standards.
C. Neither a nor b.
D. Both a and b. <---------
Term
When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of
Definition
A. relevance.
B. reliability.
C. consistency.
D. none of these. <----- it is comparablility
Term
Which basic assumption is illustrated when a firm reports financial results on an annual basis?
Definition
Periodicity assumption.
Term
Which of the following is not a time when revenue may be recognized?
Definition
A. At time of sale
B. At receipt of cash
C. During production
D. All of these are possible times of revenue recognition.<------------

Term
Which of the following is not a benefit associated with the FASB Conceptual Framework Project?
Definition
A. A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting.
B. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
C. A coherent set of accounting standards and rules should result.
D. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. <------
Term
Which of the following statements concerning the cost-benefit relationship is not true?
Definition
A. Business reporting should exclude information outside of management's expertise.
B. Management should not be required to report information that would significantly harm the company's competitive position.
C. Management should not be required to provide forecasted financial information.
D. If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.<------
Term
Which of the following is a primary characteristic of useful accounting information?
Definition
Relevance.
Term
First level of the conceptual framework
Definition
Objectives
Term
What are three objectives of the first level of the conceptputal framework?
Definition
1. Useful to those making investment and credit decision,
2.Helpful to present and potential investors, creditors, and ohter users in assessing the amounts, timing and uncertainity of cash flows
3. aout the economic resources and the claims to those and the changes in them
Term
Second level of the conceptual framwork
Definition
1.Qualitive characteristics of acconting information
2. the elements
Term
What are the two primary and two secondary charatisics
Definition
Primary- 1. Relavance a)Predictive
b) feedback
c) Timliness
(2) Reliablilty a)verifibiltiy
b)faithful Repenstation
c) Neutlaity
Secondary 3.Comparibilty 4. Consistency
Term
What are the elements
Definition
1. Assets
2.Liabliliies
3. equity
4. investment by owner
5distribution to owners
6. omprehensive income
7. revenue
8. Expenses
9. Gains
10 losses
Term
What is the the third level of the conceptual framework
Definition
Recongition and measurement concepts:
1. Assumptions 2. Principals 3. Constraints
Term
what are the four assumptions
Definition
Economic entity assumption
Going concern assumption
monetary unit
perdiocity assumption
Term
what are the pricipals
Definition
measurement- hisotric Cost principal, ecomonic enity principal, fair value principal
Revenue recognition principal-a)when realized or realiable b)when earned
Expense recognition principal-a) let the expense follow the revenue b) rational and systematic allocation
Full disclosure principle-make a differnce in the decisions.
Term
What are the contraints-
Definition
1.cost-benfit
2. materiality
3. industry practise
4. conservatism