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