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ACCOUNTING CRASH COURSE QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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ACCOUNTING CRASH COURSE QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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ACCOUNTING CRASH COURSEQUESTIONS AND ANSWERS WITH
SOLUTIONS 2024
Accounting is important for - ANSWER firm's officers, investors, lenders, and the general public
Generally Accepted Accounting Principles (GAAP) - ANSWER a set of accounting standards that is used in
the preparation of financial statements
Securities and Exchange Commission (SEC) - ANSWER -division of corporate finance: oversees financial
reporting by corporations
Financial Accounting Standards Board (FASB) - ANSWER Types of pronouncements:
-Statements of Financial Accounting Standards
-Interpretations
-Financial Accounting Concepts
-Emerging Issues Task Force Statements
International Financial Reporting Standards (IFRS) - ANSWER unified set of international accounting
standards
Assumption 1: Accounting Entity - ANSWER -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 - ANSWER -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 - ANSWER -financial statements must be reported in the national monetary
unit
-can only show measurable activities of a corporation
Assumption 4: Periodicity - ANSWER -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 - ANSWER -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 - ANSWER 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 - ANSWER costs associated with making a product must be recorded
during the same period as revenue generated from that product
Principle 4: Full Disclosure - ANSWER 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 - ANSWER certain measurements cannot be performed completely
accurately and must therefore utilize conservative estimates and judgements
Constraint 2: Materiality - ANSWER 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 - ANSWER for each company, the preparation financial statements must utilize
measurement techniques and assumptions which are consistent from one period to another
Constraint 4: Conservatism - ANSWER 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 - ANSWER -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 - ANSWER -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 - ANSWER -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 - ANSWER 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) - ANSWER -required filing prior to companies' annual shareholder meetings
-contains detailed information about top officers and their compensations
Important Sections of the 10-K - ANSWER -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: - ANSWER
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? - ANSWER 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? - ANSWER 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.
The income statement is designed to measure: - ANSWER The profits of a firm over a period of time.
The income statement is designed to show the profitability of a business (revenues less expenses) over a
period of time (usually a quarter or year). The income statement is an accrual measure of profits and
thus not the best measure of cash flows. It is also a poor measure of a company's liquidity or solvency,
which involves an analysis of a company's short term and long term assets and liabilities, respectively.
The balance sheet is designed to show a firm's financial position, while the cash flow statement shows
the amount of cash generated by a firm.
The "matching principle" states that: - ANSWER Costs associated with making a product must be
recognized during the same period as revenue generated from that product.
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