ACCT 327 Exam 1

What is an economic entity

When the company is separate from the owners

What is going concern

The entity will continue to operate for the foreseeable future

What is periodicity

Economic activities can be divided into to unique time periods (month, quarter, year)

What are the 4 accounting assumptions

1. Economic Entity

2. Monetary Unit

3. Going Concern

4. Periodcity

Define Accrual Basis Accounting

Representation of economic effects during the period when the transaction occurred

Who are the 5 players in the Accounting Process

1. Management

2. Auditors

3. Financial statement users

4. SEC

5. FASB

What are the enforceable guidelines to prepare accounting statements

GAAP (Generally Accepted Accounting Principles)

What are the Auditing guidelines

GAAS (Generally Accepted Auditing Standards)

What does the SEC do?

set and enforce regulations for stocks

What does the FASB do?

Set accounting standards using the conceptual framework

is FASB public or private

private

When and why was the SEC created

1934
In response to the stock market crash/ great depression

When and why was the FASB created

1973
Need for independence in standard setting

What are the 5 major financial reports

1. Balance Sheet

2. Income Statement

3. Statement of Stockholders’ Equity

4. Statement of Cash Flows

5. Footnotes

What is the main objective of financial reporting

to provide information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making resource allocation decisions

What two things that make information useful

1. Relevance

2. Faithful Representation

What are the 3 values needed for Relavance

1. Predictive value

2. Confirmatory value

3. Materiality

what are the 3 values needed for faithful representation

1. Completeness

2. Neutrality

3. free from error

what are the 4 enhancing characteristics of being useful

1. Comparability

2. Verifiability

3. Timeliness

4. Understandability

What is definitional primacy

all definitions come from one spot

What does the FASB base their definitions off of

Take a Balance Sheet approach

What are the 3 recognition criteria

1. Definitions

2. Measurability

3. Faithful Representation

What are the 2 Measurement systems?

1. Entry price system (historical cost)

2. Exit Price System (fair value)

what are the 3 processes that enable accrual accounting

1. Accruals

2. Deferrals

3. Allocation

What are the credit accounts

• Liability

• Paid-in Capital

• Revenues

• Gains

What are the Debit accounts

• Asset

• Expense

• Loss

• Dividends

WHat are the 3 types of cash flows

1. Operating

2. Investing

3. Financing

What are the identifiable totals accounts in the Single step income statement

• Total revs and gains

• Total expenses and loss

• Income before Taxes

• Net income

What are the identifiable totals accounts in the multi-step income statement

• Gross Profit

• Operating Income

• Income before taxes

• Net Income

What are the 2 types of items on an income statement

1. Permanent

2. Temporary

How must discontinued operations be disclosed

• Separately from the rest of the company

• net (after) of tax

When a discontinued component is sold BEFORE the end of the period, the income includes:

• Earnings from the discontinued component through the disposal date

• The gain or loss on the disposal

When a discontinued component is sold AFTER the end of the period, the income includes:

• Earnings from the discontinued component for the period

• Impairment loss (FV<BV)

What is Other Comprehensive Income (OCI)

• unrealized gains/losses on debt securities

• Unrealized gain/loss on hedging transactions

• Unrealized gain/loss on foreign currency translation

• Pensions

How do you find Comprehensive Income

net income + OCI

Accounts included in statement of stockholder’s equity

common stock, retained earnings, and accumulated other comprehensive income (A OCI)

When do you make a retrospective chand to the books?

• Errors

• Changes in Accounting Principles

What do you change prospectively

Changes in estimates

What requires a restatement if occurs

a correction of material error

What does a Balance Sheet provide the information to asses?

• Liquidity

• Financial Flexibility

• Solvency

What 3 things limit the Balance sheet

• Uses of historical cost

• estimations

• omissions

Where are non-cash investing and financing activities found?

A note at the bottom of the statement of cashflows