Exam (elaborations)

Accounting Crash Course, Questions and Correct Answers.

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Accounting

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Accounting

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Uploaded on July 16, 2024
Number of pages 26
Written in 2023/2024
Type Exam (elaborations)
Contains Questions & answers

accounting crash course questions and correct ans

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Accounting Crash Course, Questions
and Correct Answers.
Accounting is important for

firm's officers, investors, lenders, and the general public

Generally Accepted Accounting Principles (GAAP)

a set of accounting standards that is used in the preparation of financial statements

Securities and Exchange Commission (SEC)

-division of corporate finance: oversees financial reporting by corporations

Financial Accounting Standards Board (FASB)

Types of pronouncements:
-Statements of Financial Accounting Standards
-Interpretations
-Financial Accounting Concepts
-Emerging Issues Task Force Statements

International Financial Reporting Standards (IFRS)

unified set of international accounting standards

Assumption 1: Accounting Entity

-a company is considered a separate "living" enterprise apart from its owners
-it is engaged in clearly-defined activities
-regularly reports its financial health to the general publics
-pays taxes and can file lawsuits

Assumption 2: Going Concern

-a corporation is assumed to remain in existence indefinitely
-assets and liabilities are recognized values that assume the company will not have to sell them at
liquidation

Assumption 3: Measurement

-financial statements must be reported in the national monetary unit
-can only show measurable activities of a corporation

Assumption 4: Periodicity

-companies are required to file annual and interim reports
-a fiscal year is frequently but not always aligned with the calendar year

,Principle 1: Historical Cost

-financial statements report companies' resources at an initial historical cost
-represents the easiest measurement method without a need a for appraisal and revaluation
-minimized management discretion and subjectivity
-IFRS is more willing to allow this subjectivity to avoid misrepresenting the true value of assets

Principle 2: Revenue Recognition

accrual basis of accounting dictates that revenues must be recorded when earned and measurable
-cannot be recorded until the order is shipped to a customer and collection from that customer (who
uses a credit card) is reasonably assured

Principle 3: Matching Principle

costs associated with making a product must be recorded during the same period as revenue generated
from that product

Principle 4: Full Disclosure

companies must reveal all relevant economic information that they determine to make a difference to its
users
-should be accomplished in: financial statements, notes to financial statements, and supplementary
information

Contraint 1: Estimates & Judgements

certain measurements cannot be performed completely accurately and must therefore utilize
conservative estimates and judgements

Constraint 2: Materiality

inclusion and disclosure of financial transactions in financial statements hinge on their size and effect on
the company performing them
-materiality varies across different entities

Constraint 3: Consistency

for each company, the preparation financial statements must utilize measurement techniques and
assumptions which are consistent from one period to another

Constraint 4: Conservatism

financial statements should be prepared with a downward measurement bias
-assets and revenues should not be overstates, while liabilities and expenses should not be understated

Form 10-K

-required annual filing
-must be filed within 60-90 days within year end
-provides the most detailed overview of companies' financial operations and regulations governing them

, Form 10-Q

-publicly-traded companies file a quarterly report with the SEC for the first three quarters
-must be filed within 40-45 days of quarter end

10-K vs. 10-Q

-10-K's are more detailed
-10-K reports are audited by an independent firm while 10-Q filings are reviewed by a CPA but are
unaudited

Form 8-K

required filing any time a company undergoes or announces a materially significant event such as a n
earnings press release, an acquisition, a disposal of assets, bankruptcy, etc.
-usually filed within 4 days of the event

Form 14A (Proxy Statement)

-required filing prior to companies' annual shareholder meetings
-contains detailed information about top officers and their compensations

Important Sections of the 10-K

-Item 6: selected financial data
-Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
-Item 8: Financial Statements and Supplementary Data

The regulating body that oversees the development of accounting standards in the U.S. is:

FASB

FASB formulates accounting standards through the issuance of Statements of Financial Accounting
Standards (SFAS). These statements make up the body of accounting rules known as the Generally
Accepted Accounting Principles (GAAP). IASB oversees international financial reporting standards (IFRS).

Which of the following statements is TRUE?

GAAP requires that firms show recorded values for acquired intangible assets such as patents and
trademarks on their financial statements

GAAP requires that firms only show measurable activities, such as the value of acquired intangible
assets. Assets such as employee, customer loyalty and internally-developed trademarks are not shown
on financial statements because they're difficult to quantify.

Which of the following statements is TRUE?

Publicly traded US companies are required to file three 10-Q's and one 10-K annually.

Publicly-traded US companies must file three quarterly (10-Q) reports at the end of their 1Q, 2Q and 3Q,
and a 10-K at the end of their fiscal year.

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Accounting Crash Course, Questions and Correct Answers.

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