Accounting Exam 1 chapter 2 – Flashcards
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In a classified balance sheet, assets are usually classified as
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current assets; long-term investments; property, plant, and equipment; and intangible assets.
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A current asset is
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expected to be converted to cash or used in the business within a relatively short period of time.
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Which of the following is not classified properly as a current asset?
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A receivable from the sale of an asset to be collected in two years
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An intangible asset
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derives its value from the rights and privileges it provides the owner.
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Which of the following is not considered an asset?
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Dividends
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Liabilities are generally classified on a balance sheet as
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current liabilities and long-term liabilities.
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Which of the following is not a current liability?
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Bonds Payable
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Equipment is classified on the balance sheet as
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property, plant, and equipment.
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On a classified balance sheet, companies usually list current assets
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in the order in which they are expected to be converted into cash.
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Declaring a cash dividend will
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decrease retained earnings.
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Generally accepted accounting principles
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are accounting rules that are recognized as a general guide for financial reporting.
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The agency of the United States Government that oversees the U.S. financial markets is the
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Security Exchange Commission.
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What organization issues U.S. accounting standards?
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Financial Accounting Standards Board
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Which one of the following is not an enhancing quality of useful information?
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Materiality
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All of the following are qualities of useful information except
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flexibility.
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The two fundamental qualities of useful information are
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relevance and faithful representation.
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The convention of consistency refers to consistent use of accounting principles
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among accounting periods.
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The quality of consistency enhances
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comparability.
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Information that is presented in a clear fashion, so that users of that information can interpret it is an example of
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understandability.
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In order for accounting information to be relevant, it must
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help predict future events or confirm prior expectations.
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Accounting information should be verifiable in order to enhance
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faithful representation.
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An item is considered material if
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its size is likely to influence the decision of an investor or creditor.
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Information presented in a clear and concise fashion so that users can comprehend its meaning is an application of
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understandability.
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A company using the same accounting principles from year to year is an application of
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consistency.
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Accounting information is relevant to business decisions because it
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confirms prior expectations.
