question

obligation to transfer cash or other resources as a result of a past transaction

answer

Liability

question

Dividends paid by a corporation to its shareholders

answer

Distribution to owners

question

Inflow of an asset from providing a good or service

answer

Revenue

question

The financial position of a company

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assets liability and equity

question

Increase in equity during a period from nonowner transactions

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comprehensive income

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Increase in equity from peripheral or incidental transaction

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Gain

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Sale of an asset used in the operations of a business for less than the asset's book value

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Loss

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The owners' residual interest in the assets of a company

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Equity

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An item owned by the company representing probable future benefits

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Asset

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Revenues plus gains less expenses and losses

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Net Income

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An owner's contribution of cash to a corporation in exchange for ownership shares of stock

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Investment by owner

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Outflow of an asset related to the production of revenue

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expense

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Predictive Value

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Information is useful in predicting the future.

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Relevance

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Pertinent to the decision at hand.

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Timeliness

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Information is available prior to the decision

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Distribution to owners

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Decreases in equity resulting from transfers to owners.

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Confirmatory Value

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Information confirms expectations

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Understandibility

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Users understand the information in the context of the decision being made.

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Gain

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Results if an asset is sold for more than its book value.

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Faithful Representation

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Agreement between a measure and the phenomenon it purports to represent.

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Comprehensive Income

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The change in equity from nonowner transactions.

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Materiality

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Concerns the relative size of an item and its effect on decisions

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Comparibility

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Important for making interfirm comparisons.

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Neutrality

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The absence of bias.

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Recognition

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The process of admitting information into financial statements.

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Consistency

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Applying the same accounting practices over time.

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Cost effectiveness

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Requires consideration of the costs and value of information.

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Verifiability

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Implies consensus among different measurers.

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Expense Recognition

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Record expenses in the period the related revenue is recognized

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Periodicity

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The life of an enterprise can be divided into artificial time periods

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Historical Cost Principle

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The original transaction value upon acquisition

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Materiality

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Concerns the relative size of an item and its effect on decisions

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Revenue Recognition

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Criteria usually satisfied for products at point of sale

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Going concern assumption

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The entity will continue indefinitely

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Monetary Unit Assumption

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A common denominator is the dollar

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Economic entity assumption

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The enterprise is separate from its owners and other entities

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Full-disclosure principle

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All information that could affect decisions should be reported

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Jim Marley is the sole owner of Marley's Appliances. Jim borrowed 100,000 to buy a new home to be used at his personal residence. This liability was not recorded in the records of Marley's Appliances.

answer

The economic entity assumption

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Apple Inc. distributes an annual report to its shareholders

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The periodicity assumption

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Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives.

answer

Expense recognition (also the going concern assumption)

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Crosby Company lists land on its balance sheet at 120,000, its original purchase price, even though the land has a current fair value of 200,000

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The historical cost (original transaction value) principle

question

Honeywell Corporation records revenue when products are delivered to customers, even though the cash has not yet been recieved

answer

The realization (revenue recognition) principle

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Liquidation values are not normally reported in financial statements even though many companies do go out of business.

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The going concern assumption

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IBM Corporation, a multibillion dollar company, purchased some small tools at a cost of 800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense.

answer

Materiality

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The primary objective of financial reporting is to provide information a. About a firm's management team b. Useful to capital providers c. Concerning the changes in financial position resulting from the income-producing efforts of the entity. d. About a firm's financing and investing activities

answer

Useful to capital providers

question

Statements of Financial Accounting Concepts issued by FASB a. Represent GAAP b. Have been superseded by SFASs c. Are subject to the approval of the SEC d. Identify the conceptual framework within which accounting standards are developed

answer

Identify the conceptual framework within which accounting standards are developed

question

In general, revenue is recognized when a. The sales price has been collected b. A purchase order has been received c. A good or service has been delivered to a customer d. A contract has been signed

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A good or service has been delivered to a customer

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In depreciating the cost of an asset, accountants are most concerned with a. Conservatism b. Recognizing revenue in the appropriate period c. Full disclosure d. Recognizing expense in the appropriate period

answer

Recognizing expense in the appropriate period

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The primary objective of the matching principle is to a. Provide full disclosure b. Record expenses in the period that related revenues are recognized c. Provide timely information to decision makers d. Promote comparability between financial statements of different periods

answer

Record expenses in the period that related revenues are recognized

question

The separate entity assumption states that, in the absence of contrary evidence, all entities will survive indefinitely. True or False

answer

False

question

Intraperiod tax allocation

answer

Associates tax with income statement item

question

Comprehensive Income Ch.4

answer

Total nonowner change in equity

question

Unrealized holding gain on investment

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An other comprehensive income item

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Operating Income

answer

Directly related to principle revenue-generating activities

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A discontinued operation

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A component of entity

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Earnings per share

answer

Required disclosure for publicly traded corporation

question

Prior period adjustment

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Correction of material error of a prior period

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Financing activities

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Related to the external financing of the company

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Operating Activities (SCF)

answer

Related to the transactions entering into the determination of net income

question

Investing Activities

answer

Related to the acquisition and disposition of long-term assets

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Direct Method

answer

c Reports the cash effects of each operating activity directly on the statement

question

Indirect Method

answer

Starts with Net Income and works backwards to convert to cash

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