Intermediate Accounting Flashcards

Terms Definitions
Conservatism
Lower-of-cost-or-market
Matching Principle
Accrual Method
Q1: ARB
Accounting Research Board
Managerial Accounting
The information accumulation, processing, and communication system designed to meet the decision-making needs of internal users
Neutrality
the info presented is unbiases
Assets
probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
Q1: SEC
Securites and Exchange Commission
a___________ ledger contains the details related to a given general ledger account
subsidiary
available-for-sale
debt securities not classified as held-to-maturity or trading securities
False
True or False: The Financial Accounting Standards Board appoints the seven members of the Financial Accounting Standards Advisory Council, which oversees the American Institute of Certified Public Accountants
Balance Sheet
summarizes a company's financial position at a given date
Revenues
inflows (enhancement of assets or settlemtn of liabilites) from delivering or producing goods, services , or other activities that represent the ongoing major or central operations of the entity
What is FASB
financial accounting standards board
Revenues
Inflows or other enchancements of assets of an entity or settlement of its liabilities from delivering goods,services, or other activities
Consistency
applies the same accounting treatment to similar events
What is GAAP?
Generally accepted accounting principles
the two-sided effect of each transaction is recorded in appropriate accounts in the ____ accounting system
double-entry
debt securities
represent a creditor relationship with another entity. debt securities include u.s. government securities, municipal securities, corporate bonds, convertible debt, and commercial paper.
Historical Cost
GAAP requires that companies account for and report many assets and liabilities on the basis of acquisition price. Generally thought to be reliable
Financial Reporting
The process of communicating financial accounting information about a company to external users
Third Level C: Constraints
Conservatism, Industry Practices, Cost-Benefit and Materiality
Revenue Recognition
Revenue is recognized when (a) realized or reliazable and (b) earned- usually at the point of sale.
gross method
1)lessor debits lease receivable for the gross sum of the lease payments and credits "unearned interest revenue" for the difference between the total of the payments and the present value of the payments
revelance
must be capable of making a difference in a decision, helps users make predictions about the ultimate outcome of events, must be presented in a timely manner
losses
decreases in equity from peripheral or incidentaltransactions of and entity and from all other transactiona and other events except those that result from expenses or distributions to owners
JOURNAL
The book of original entry where transactions and selected other events are originally recorded.
Comparability and Consistency
Two secondary qualities of financial accounting information
A. Pronouncements of authoritative bodies (FASB, APB, CAP, SEC).B. Pronouncements of bodies of expert accountants that have been exposed for public comment.C. Pronouncements of bodies of expert accountants that have not been exposed for public comment.D.
Hierarchy of Sources of GAAP
Company managers
What are the internal users of accounting information?
Economic Entity Assumption
Business and personal records should be seperate
Going Concern
assumes that the company will continue to operate in the near future, unless substantial evidence to the contrary exists
rent abatement
lease agreements call for uneven rent payments during the term of the lease. ie. initial payment is waived
Expenses
Outflows or tother using up of assets or incurrences of liabilities
Q2: FASB
The FASB is the private sector organization that has the responsiblity for setting finacial accounting and reporting standards for firms issuing audited finanical statements.
Expenses
Outflows or tother using up of assets or incurrences of liabilities
Real accounts are found on the ___________
balance sheet
Comprehensive Income
Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners
Going Concern Assumption
Rational why things aren't recorded at liquidation value- assumption business will survive. justification for depreciation and amortization. If a firm is not going concern, non-historical cost values are appropriate. makes the current – noncurrent classification of assets and liabilities on the balance sheet useful
Monetary Unit
There must be some basis for measuring the exchange of goods or services. The reporting country's currency is the unit of exchange. In U.S., the dollar is unadjusted for inflation (STABLE UNIT OF MEASURE)
statement of cash flow classification (capital leases)
interest: operating activities principle: financing activities
Investments by Owners
Increases in net assets of a particular enterprise resulting from transfers to it from other entities
Q2: SFAC
A SFAC is a conceptual statement that is part of a framework of concepts prepared by the FASB for the purpose of providing guidance in the standard setting process and providing an understanding of the accounting and reporting process to accountants and non-accountants alike.
Basic Objectives begin with
broad concern about information that is useful to investor and creditor decisions
a list of accounts and their balances at a given time
trial balance
units of production method
cost minus salvage value divided by life in units. annual depreciation is units each year times rate per unit
Financial Accounting Foundation
Selects the members of FASB and the Advisory Council, funds their activities, and generally oversees the FASB's activities
Return on Investment (ROI)
provides a measure of overall company performance
the lease term is...
the noncancelable part plus any period covered by a bargain renewal option
what does fasac do?
consult with fasb on major policy issues.
Q2: SEC
The SEC is an agency of Congress. Its principle function is to ensure that the issuance and trading of securities is carried out in a fair and orderly manner.
Q2: SEC
The SEC is an agency of Congress. Its principle function is to ensure that the issuance and trading of securities is carried out in a fair and orderly manner.
Pro Forma measures are
standard measures that are ajusted for one-time nonrecurring items
The amount of Allowance for Doubtful Accounts is deductedfrom total of ________,_________, and __________
accounts, notes, interest recievable
Ordinary & necessary costs
those that will be capitalized as the cost of an asset
Second Level: Financial Statement Elements
Ten in total: Assets and Liabilities, Equity, Distrib to owners, investment by owners, comprehensive income, revenue and expenses (income statement), gains and losses (peripheral)
Name the two sets of standards accepted for international use
US GAAPIFRS (international financial reporting standards
Q3: 8-K
The 8-K is a report that must be filed with the SEC after the occurrence of a material event affecting the company.
What were the major purposes of the APB?
determine appropriate practices, advance the written expression of accounting principles and narrow the area of difference and inconsistency in practice
The SEC has recommended that future accounting standards should not follow a rules-base or principles based only approach, but should be objectives-oriented.Should be built on an improved and consistently applied conceptual frameworkClearly state the acco
Recent Focus on Objectives Oriented Principles
initial direct costs for financing leases
interest revenue is earned over the lease term, so initial direct costs are matched with the interest revenues they help generate - deferred and recognized over the lease term
What are the significant differences between the FASB and the APB?
1 smaller membership2 well paid, full time members3 greater autonomy4 increased independence5 broader representation
Statement of Changes in Stockholder's Equity
summarizes the changes in each item of stockholder's equity for a period of time
What are some of the challenges facing accounting?
1. financial reports fail to provide Nonfinancial measurements.2 fail to provide forward looking information.3. fail to provide information on soft assets (intangibles).4. Timeliness - little or no real time financial information.
what are the two premises that fasb relies on?
1 responsive to entire economic community
2 operate in full view of the public
The number in the posting reference column serves 2 purposes
1) indicates the ledger account number of the account involved

2) indicates that the posting has been completed for a particular item
1) How the management of a company has discharged its stewardship responsibility to owners (stockholders) for using the company resources2) explanations and interpretations by management to help external users understand the financial info provided (full
According to SFAC #1 financial statements or reportings should include what two things:
name some changes implemented by the sarbanes-oxley act to the accounting profession
1. code of ethics for senior financial officers
2. audit committees must be comprised of independent members.
lessee
user
Internal Revenue Service
IRS
goodwill
unidentifiable asset- only recorded when buy another company- excess of purchase price over fair value of identifiable net assets
FASB Emerging Issues Task Force
EITF
Risk
the uncertainty or unpredictability surrounding a company's future results
Q1: GAAP
Generally Accepted Accounting Principles
Q1: GAAP
Generally Accepted Accounting Principles
subcategories of prepayments
Prepaid expenses
Unearned revenues
Gains
Increases in equity and from peripheral or incidental transactions and from all other transactions and other events and circumstances affecting the entity during a period of time except those that result from revenues or investments by owners
168
how many Statements of Financial Accounting Standards (SFASs) did FASB issue?
Identify Topic--Appoint Task Force--Conduct Research=ISSUE PRELIMINARY VIEWS OR INVITATION TO COMMENT-- Hold Public Hearings--Deliberate on Findings=ISSUE EXPOSURE DRAFT-- Hold Public Hearings-- Modify Exposure Draft--Vote(simple-majority)= ISSUE STATEMEN
FASB's Due Process
True
True or False: Relevance is Qualitative and Materiality is Quantitative
What is SEC?
Securties and exchange commission
Q1: SFAC
Statement of Fiancial Accounting Concepts
Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets of provide services to other entities in th efuture as a result of past transactions or events
What is SEC?
Securties and exchange commission
The procedure generally followed to reduce the balance of nominal (temporary) accounts to zero in order to prepare the accounts for the next period's transactions is called
CLOSING
effective-interest method
companies must amortize premium or discount using the
Timeliness
Available to users before it loses capacity to influence their decisions. Relevance
Representational Faithfulness
the transaction reflects the economic substance rather than legal form. (Validity)
SOCF differences
1) US GAAP- operating activities: dividends received, interest paid, and interest received- financing: dividends paid2) IFRS- operating- financing - investing: dividends received, interest received- financing: dividends paid, interest paid
Q2: AICPA
The AICPA is the principle professional organization of auditors (public accountants) in the U.S
How many members are in FASB?
7 members
A __________ account is used to indicate withdrawls by the owners in a proprietorship or partnership
Drawing
commercial substance
when assets in an exchange will produce different future cash flows
Relevance and Reliability
Two primary qualities of financial accounting information
1) Statements of Accounting Standards- establish GAAP2) Interpretations- provide clarification3) Staff Positions- provide timely application guidance4) Techinical Bulletins- provide guidance on reporting problems5) Statemens of Financial Accounting Concep
Original FASB Pronouncements
Third Level: Recognition and measurements of financial reporting
Assumptions, principles, and constraints
Periodicity Assumption
The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods is the periodicity assumption. The periodicity assumption suggests that the economic life of a business can be divided into artificial time periods such as a month, quarter or year.
Gains and Losses
result from perpheral or incidental transactions of an entity (other than additional investment or disinvestment)
sales-type lease
- differs from a direct financing lease in only one respect- the lessor receives a manufacturers profit on the sale of the asset.- this profit exists when the fair value of the asset exceeds the cost or carrying value of asset sold
Two primary qualities that make accounting information useful for decision making
reliablity and revelance
Two primary qualities that make accounting information useful for decision making
reliablity and revelance
What is AICPA
American Institute of Certified Public Accountants
A _______________ is made at te beginning of the next accounting period and is the exact opposite of the related adjusting entry made in the previous period.
reversing entries
Investment by Owners
Increases in net assets of a particular enterprise resulting from transfers to it from other entities or something of value to obtain or increase ownership interest in it. Assets are commonly received as investments by owners, but that which is received may also include services or satisfaction or conversion of liabilities of the enterprise.
Monetary Unit Assumption
Assumes that the dollar is the measuring stick used to report
1) Relevant2) Reliable
For information to be decision useful (the overall qualitatvie characteristic for accounting information)it must be what two things?
What does "generally accepted" mean?
an authortative accounting rule making body has established a principle of reporting in a given area or that over time a given practice has been accepted as appropriate b/c of its universal application.
Distributions to Owners
Decreases in net assets of a particular enterprise resulting from transferring assets rendering servies or incurring liablities
Six Statments of Financial Accounting Concepts
"Objectives of Financial Reporting by Business Enterprises" presents the goals and purposes of accounting

"Qualitative Charachteristics of Accounting Information" examines the charchteristics that make accounting information useful.

"Elements of Financial Statments of Business Enterprises" provides definitions of items in financial statments, such as assets, liabilities, revenues and expenses.

"Recognition and Measurement in Financial Statments of Business Enterprises" sets forth fundamental recognition and measurement criteria and guidance on what information should be formally incorporated into financial statements

"Elements of Financial Statments" Releaces SFAC no 3 and includes not-for-profit organizations

"Using Cash Flow Information and Present Value in Accounting Measurents" provides a framework for using expected future cash flows and present values as a basis for measurement
The prepaid expense adjusting entry results in a _____ to a(n) _________ account and a ________ to a(n) asset account
debit, expense; credit, asset
impairment of an asset
permanent decrease in value of an asset, such as goodwill- when it occurs, expense should be recognized
Securities and Exchange Commission (SEC)
Delegates its legal authority (granted by Congress) to set GAAP to the FASB.Administers the Securities Act of 1933 and Securities Exchange Act of 1934
1) Predictive Value2) Feeback Value3) Timeliness
3 Ingredients to be Relevant:
retrospective treatment
if it is not practical to report the information retrospectively then report in current period (not allowed in GAAP)
The first group of three elements that describes amounts of resources and claims to resources at a moment in time, these elemets are
assets, liabilities, and equity
Q3: 8-K
The 8-K is a report that must be filed with the SEC after the occurrence of a material event affecting the company.
Q3: Form S-1
Form S-1 is teh document filed with the SEC to register an initial issuance of securities for sale to the publice under the 1933 Securities Act.
Name four financial statements most frequently provided.
balance sheet, income statement, statement of cash flows, and statement of owners' equity.
TRIAL BALANCE
a list of all open accounts in the ledger and their balances.
another motivation for investing in securities
to secure certain operating or financing arrangements with another company
1) have an effect on trends?2) mask a change in earnings?3) change a loss into a profit?4) misrepresent compliance with loan agreements?5) increase management's compensation?
5 Materiality Considerations:
going concern assumption assumes that
the business will have a long life
Q3: SEC Practice Section/Private Companies Section
The AICPA has split its membership into those firms or individuals that have SEC clients and those that do not.
THe post closing trial balance consits of only the _____, ________ and ______ accounts
asset, liabilty, and owners' equity
when leased property includes land and a building and there is a BPO or transfer of title record:
lessee should record each asset separately
what does the business section consist of
- operating income, expenses, assets, liabilities and cash flows- investing income, expenses, assets, liabilities and cash flows
what is the most authoritative in the house of gaap?
1. FASB standards, interpretations, and staff positions
2. APB opinions
3. AICPA accounting research bulletins
how does a lessor account for a BPO
- when computing periodic rental payments, subtracts the PV of the BPO price from the amount to be recovered (Fair value) to determine the amount that must be recovered from the lessee through periodic rental payments
what does the AcSec do?
speaks for the AICPA in the area of financial accounting and reporting.
The procedures for preparing a trial balance consist of
Listing the account titles and their balances

totaling the debit and credit columns

proving the equality of the two columns
a lessor must meet what 2 additional criteria to classify a lease as capital
1) the collectability of the lease payments are reasonably assured2)if any costs to the lessor have yet to be incurred, they are reasonably predictable
what is rule 203 of aicpa's code of professional conduct?
members are prohibited from expressing an unqualified opinion on financial statements that contain material departure from GAAP.
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Term:
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