Chapter 1 ACC 370

name the two fundamental qualities that make accounting info useful for decision making

relevance and faithful representation

what are the related ingredients for relevance

predictive value, confirmatory value, materiality

what is evaluated in the aspect of materiality

relative size and importance of an item

completeness, neutrality, and free from error are all aspects of which part of the conceptual framework

faithfull representation

name the 4 accounting assumtions

economic entity, going concern, monetary unit, periodicity

transactions must be recorded at measurable value

measurement principle

what does the revenue recognition principle state

revenue must be recognized when the performance obligation is satisfied

The idea: Costs should be recognized as expenses in the same periods as the revenues they help generate.

expense recognition principle

Which party was involved in standard-setting Setting was established by the federal government

SEC Securities and Exchange Commission

Who requires public to follow GAAP

SEC

Who is in charge of establishing/improving standards of financial accounting and reporting known as GAAP

FASB FINANCIAL Accounting Standards Board

What is the role of the FAF financial Accounting Foundation?

select members of FASB, funds activites

When does the Financial Accounting Standards Advisory Council step in?

Major policies,tech issues, selection and organization of task forces.

Define Predictive Value

helps users form their OWN expectations

Define confirmatory Value

Helps users CONFIRM or correct prior expectations

has a specific relevance ( is this number big enough to change the way someone interprets financial statements.

materiality

Investments to owners increase/decrease equity

increase

Distributions to owners has what effect on equity

decrease

what is the accounting equation

A=L+SE/NET ASSETS

All other changes in equity during the period mainly form a companys performace or outside factors is known as?

comprehensive income

Name the 4 assumptions in accounting

economic entity

going concern

monetary unit

periodicity

Economic activity can b e identified with a particular unit or accountability all gains/losses are for that specific company

economic entity assumption

Business use money as the base measuring tool is what assumption

monetary unit assumption

implies a company can divide its economic activities into artificial time periods

periodicy

The historical cost principle is of limited usefulness if we assume eventual liquidation… business will keep operation and not plan to liquidate

going concern

Explain measurable principle

Transactions must be recorded at a measurable value

define revenue recognition

Revenue is recorded when the company has fulfilled its performance obligation- not when cash is recivedreceived

Full disclosure principle

Fin. Statements must include all info that could affect users decisions

explain expense recognition

expenses should be recorded in the same period as the revenues they helped generate

What are the two types of adjusting entries

deferrals and accurals

what are defferals

prepaid expenses/unearned revenues

what are accruals

accrued revenue/accrued expenses

incurred but not yet paid in cash or recorded

accrued expense

paid in cash before they are used or consumed

prepaid expenses

unearned revenues are defined as

cash received before services are preformed

define accrued revenue

revenue for services preformed but not yet received in cash or recorded

what type of account is accumulated depreciation equipment

contra- asset account

define the accrual accounting basis

revenues and expenses are recorded when a transaction occurs rather than when money is exchanged

define cash basis accounting

record revenue when you receive cash

what are

How would you set up a balance sheet

assets

list assets..

less accumulated depreciation

total assets. __________

Liabilities

list liabilities

accounts payable

common stock

total liabilities. ———————-

Stock Equity

paid in capital

retained earnings

Total owners equity __________

Total liabilities and SE. ——————-

Describe Income Statement

Service Revenue _________

Expenses

#list expenses

Total expenses. ___________

Net Income/loss ___________

how is the date listed on an income statement

for the month ended inserts date

Statement of retained Earnings Go!

beginning retained earnings

add: net income

less: dividends

ending retained earnings

how to list the date for statement of retained earnings

for the moth ended inserts date

what are the enhancing qualities of the conceptual framework

comparability,verifability,timliness, understanability

Formula for interest revenue

Interest Revenue=Cash Collected+(Ending Receivable−Beginning Receivable)