Accounting 201: Intermediate Financial Accounting I Ch 4. Disclosure Requirements for Balance Sheets

Notes to the financial statements

give additional company information to financial statements users

Generally Accepted Accounting Principles (GAAP)

• how things are reported

• what is reported

• what is disclosed in notes

Cash Basis

records income when it’s received and expenses when payments are made

Accrual Basis

records income when a sale is made and expenses when a bill is received

Lower of cost or market

the inventory will be valued at the lowest replacement cost, whether that be the wholesale cost, or the cost that the product is sold at market

Subsequent events

things that happened after the date on the balance sheet, but before the financial statements have actually been issued

Recognized events

require changes be made to the financial statements

Unrecognized events

do not require changes be made to the financial statements

Intangibles

assets that have no physical shape or form

Consolidated financial statements

financial statements that include the financial information for not only one company, but also its subsidiaries

Contingent liabilities

a liability that has not yet occurred, but the conditions are favorable for it to occur in the near future

Financial Accounting Standards Board (FASB)

the governing board for accounting practice in the United States

The Widget Company is changing the way it does its accounting. They used to report revenue only when the money was received, but now they will report it once an order is made. How will this show in the notes?

1. As a change from a recognized event to an unrecognized event

2. As a change from market value to cost

3. As a change in amortization method

4. As a change from cash to accrual

As a change from cash to accrual

What is a liability that has not yet occurred but the conditions are favorable that it will occur called?

1. Recognized liability

2. Contingent liability

3. Subsequent event liability

4. Unrecognized event

Contingent liability

What do the notes to the financial statements do?

1. Tell how much money was made or lost in a given time period.

2. Tells how cash came in to a company and went out of a company in a given time period.

3. Tell all the accounts a company has and the balance in each.

4. Give more information to users of the financial statements about items that appear in the financial statements.

Give more information to users of the financial statements about items that appear in the financial statements.

What are the guidelines that dictate how items are reported in the body of the financial statements and what is disclosed in the notes to the financial statements?

1. GAAP

2. IFSB

3. Income statement

4. AAPA

GAAP

What are events that occurred after the date on the balance sheet but before the financial statements have been issued called?

1. Contingent Liabilites

2. Consolidated statements

3. Subsequent events

4. Lower of cost or market

Subsequent events