Accounting 2000 test 1
Test 1: 1, 2, 4
Fewest from Chapter 1(6)
Chapter 2 (16)
Most imp.
Chapter 4 (28)
Example Questions:
•
What concept describes ~~~~?
•
What would you report on balance sheet? historic
Chapter 1 Financial Accounting
GAAP – generally accepted accounting principles
-
rules and procedures used by accountants
Accounting – process of gathering, identifying, and measuring relevant economic
information about a business entity and communicating to enhance decision-
making
•
Gather, identify, and measure: GAAP tells us where and what to gather
and how to measure
•
All companies are profit seekers
•
Communication is through financial statements (Balance sheets,
income statement, statement of cash flow, statement of retained
earnings)
•
Enhance decision making is the objective (decision usefulness)
Organizations that affect Accounting
1.
FASB
(Financial Accounting Standards Board): issues GAAP every year
come out with more
2.
SEC
(Securities and Exchange Commission): oversee stock exchange
and make accounting rules for companies involved
3.
IRS
(Internal Revenue Service): collection of taxes and enforce tax laws
4.
APB
(Accounting Principles Board): doesn’t exist anymore and issued a
lot of GAAP that is still enforced today
1
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5.
AICPA
(American Institute of CPAs): administer CPA exam and is the
governing body of CPAs
Underlying theory of Accounting
1.
Historical Cost Principle
a.
Assets (things of value that you own) must be reported at their
original cost
b.
Example you bought land in 1970 for $30,000 and is appraised
today said is worth $150,000
c.
We must report the land in the balance sheet at $30,000 even
though it is worth $150,000 though
d.
“cost” is objectable and profitable vs. “current value” is not objective
and verifiable
2.
Economic Entity Concept
a.
Don’t combine business with personal
b.
Each business entity is separate and distinct from other businesses
and its owners
3.
Full Disclosure principle
a.
If an item or event may influence the users decision than disclose it
i.
Parenthetically in the body of the financial statements
ii.
Read the notes accompanying the financial statement
b.
Ex. If there is a strike put that in the notes
4.
Going Concern Assumption
a.
Assume all businesses we account for will have an indefinite life
b.
Profitable over the long term
5.
Materiality (significance)
a.
Qualitative aspect: relative importance of event (strike)
b.
Quantitative: how big in the dollar amount involved
6.
Periodicity (time- period assumption)
a.
We divide time into reporting periods
i.
Most businesses use calendar year (1/1 – 12/31)
ii.

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- Spring '07
- ANDERSON
- Balance Sheet, Generally Accepted Accounting Principles
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