ACCTG 5110 Quiz 1

Acural Accounting

Measuring revenues and expenses when the activity occurs regardless of when the cash is received or paid. This is what GAAP makes us do.

Historical Cost Principle

Account for things that actually happened. Helps us record actual transactions and keeps things realistic. Related to fair value of companies vs what they actually report on their books.

Full discolusre principle

Anything that matters needs to be in the financial statement most likely in footnotes (ex- pending lawsuits)

Materiality

Property where something is big enough that it matters

Conservatism

In a situation where something is truly judgement based, pick the option that makes the company look worse. It is better to look a little worse than potentially mislead people into thinking you’re doing better than you are.

Going concern

Always assume a company will be around 12 months after they file, and if not, this must be included in the footnotes

Comparability

You should be able to use your financial statement to be able to compare your businesses to others

Consistency

You should be able to use your financial statements to be able to compare your business this year to how your business did last year.

Fair Value

Bases measurements on the price that would have been used to sell assets or paid to transfer liabilities. Market, income (net present value), and cost approaches in the few cases where historical cost is not the norm.

Which body has the authority from congress to make accounting rules?

SEC

Which body has been delegated the authority to actually make the rules

FASB

How do you refer to an old accounting rule

ASC then number

How do you refer to new accounting rules

ASU Year-Update number

ASU

Accounting standards update

ASC

Accounting standards codification

What makes gains and losses different from revenues and expenses

Gains and losses do not happen because of normal operational events. All of these accounts are equity accounts.

Equity (shareholders/stockholders equity)

Residual interest in the assets of an entity that remains after deducting liabilities.

Sarbanes Oaxley Act of 2002

Requires internal control/process audits alongside the financial statements audit. Can pass one but not the other. Happened after Enron and WorldCom