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INTERMEDIATE ACCOUNTING I (EXAM 1) CHAPTERS 1-5 QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING I (EXAM 1) CHAPTERS 1-5 QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING I (EXAM1) CHAPTERS 1-5 QUESTIONS WITH
COMPLETE ANSWERS
Objective of financial reporting - answer-provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and
other creditors
General-purpose financial statements - answer-provide financial reporting information to
a wide variety of users
Accrual basis accounting - answer-ensures that a company records events that change
its financial statements in the periods in which it receives or pays cash
Generally accepted accounting principles (gaap) - answer-common set of accounting
standards and procedures:
Securities and exchange commission (sec)
American institute of certified public accountants (aicpa)
Financial accounting standards board (fasb)
Financial accounting standards board - answer-establish and improve standards of
financial accounting and reporting for the guidance and education of the public which
includes issuers, auditors, and users of financial information
Accounting standards updates - answer-these updates amend the accounting standards
codification, which represents the source of authoritative accounting standards
Four primary financial statements - answer-balance sheet
Income statement
Statement of cash flows
Statement of owner's/stockholders' equity
Conceptual framework - answer-establishes the concepts that underlie financial
reporting.
Relevance (fundamental quality) - answer-accounting information must be capable of
making a difference in a decision. Financial information is capable of making a
difference when it has predictive value, confirmatory value, or both.
Predictive value - answer-if it has value as an input to predictive processes used by
investors to form their own expectations about the future
, Confirmatory value - answer-relevant information also helps users confirm or correct
prior expectations
Faithful representation (fundamental quality) - answer-means that the numbers and
descriptions match what really existed or happened
Completeness - answer-means that all the information that is necessary for faithful
representation is provided
Neutrality - answer-means that a company cannot select information to favor one set of
interested parties over another. Unbiased information must be the overriding
consideration.
Free from error - answer-more accurate (faithful representation) of a financial item
Comparability (enhancing qualities) - answer-enables users to identify the real
similarities and differences in economic events between companies.
Consistency - answer-when a company applies the same accounting treatment to
similar events, from period to period.
Verifiability - answer-occurs when independent measurers, using the same methods,
obtain similar results.
Timeliness - answer-having information available to decision-makers before it loses its
capacity to influence decisions.
Understandability - answer-decision-makers vary widely in the types of decisions they
make, how they make decisions, the information they already possess or can obtain
from other sources, and their ability to process the information.
Assets - answer-probably future economic benefits obtained or controlled by a particular
entity as a result of past transactions or events
Liabilities - answer-probable future sacrifices of economic benefits arising from present
obligations of a particular entity to transfer assets or provide services to other entities in
the future as a result of past transactions or events.
Equity - answer-residual interest in the assets of an entity that remains after deducting
its liabilities.
Investments by owners - answer-increases in net assets of a particular enterprise
resulting from transfers to it from other entities of something of value to obtain or
increase ownership interests (or equity) in it.
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