ACCT 301 EXAM 1 STUDY GUIDE
The purpose of financial accounting - Answers -to provide financial information about
the reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in decisions about providing resources to the entity.
Accrual-basis Accounting - Answers -ensures that a company records events that
change its financial statements int eh periods in which the events occur, rather than only
in the periods in which it receives or pays cash
FASB vs APB - Answers -smaller membership; full-time, remunerated membership;
greater autonomy; increased independence; broader representation
Issues in Financial reporting - Answers -GAAP is as much a product of political action
as it is of careful logic or empirical findings. Many user groups pressure the FASB to
influence change in existing rules
SOX - Answers -Establishes oversite board; stronger independence rules for auditors;
requires CEOs and CFOs to personally certify financials are accurate and complete;
requires auditors to be independent; companies must improve internal controls
Financial reporting challenges - Answers -nonfinancial measurements; backward-
looking information; soft assets; timeliness; understandibility
GAAP vs IFRS - Answers -GAAP is more rules based, IFRS is more principles based
Overview of the conceptual framework (triangle) - Answers -First level: Why- the
purpose of accounting
Second Level: bridge between two levels- qualitative characteristics and elements of
statements
Thrid Level: How- implementation including recognition, measurement, and disclosure
(assumptions, principles, and constraints)
Relevance - Answers -Accounting information must be capable of making a difference
in a decision. Thus, it must have predictive value, confirmatory value, or both.
Materiality - Answers -information is material if omitting it or misstating it could influence
decisions that users make on the basis of the reported financial information
Faithful representation - Answers -the numbers and descriptions match what really
existed or happened. This means that it is complete, neutral, and free from error
Enhancing qualities - Answers -comparability, verifiability, timeliness, understandibility
, Asset - Answers -Probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events
liabilities - Answers -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 - Answers -residual interest in the assets of an entity that remains after
deducting its liabilities. The ownership interest
investments by owners - Answers -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 in it
distributions to owners - Answers -decreases in net assets of a particular enterprise
resulting from transferring assets, rendering services, or incurring liabilities by the
enterprise to owners
comprehensive income - Answers -change in equity of an entity during a period from
transactions and other events and circumstances from nonowner sources
revenues - Answers -inflows or other enhancements of assets of an entity or settlement
of its liabilities during a period from delivering or producing goods, rendering services, or
any other operations
expenses - Answers -outflows or other using up of assets or incurrences of liabilities
during a period from delivering or producing goods, services, or other operations
gains - Answers -increases in equity from peripheral or incidental transactions of an
entity and from all other transactions
losses - Answers -decreases in equity from peripheral or incidental transactions of an
entity and from all other transactions
Economic entity - Answers -economic activity can be identified with a particular unit of
accountability
going concern - Answers -the company will have a long life. depreciation and
amortization policies are justifiable and appropriate only if we assume some
permanence to the company. Only where liquidation appears imminent is the
assumption inapplicable
monetary unit assumption - Answers -money is the common denominator of economic
activity and provides an appropriate basis for accounting measurement and analysis
The purpose of financial accounting - Answers -to provide financial information about
the reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in decisions about providing resources to the entity.
Accrual-basis Accounting - Answers -ensures that a company records events that
change its financial statements int eh periods in which the events occur, rather than only
in the periods in which it receives or pays cash
FASB vs APB - Answers -smaller membership; full-time, remunerated membership;
greater autonomy; increased independence; broader representation
Issues in Financial reporting - Answers -GAAP is as much a product of political action
as it is of careful logic or empirical findings. Many user groups pressure the FASB to
influence change in existing rules
SOX - Answers -Establishes oversite board; stronger independence rules for auditors;
requires CEOs and CFOs to personally certify financials are accurate and complete;
requires auditors to be independent; companies must improve internal controls
Financial reporting challenges - Answers -nonfinancial measurements; backward-
looking information; soft assets; timeliness; understandibility
GAAP vs IFRS - Answers -GAAP is more rules based, IFRS is more principles based
Overview of the conceptual framework (triangle) - Answers -First level: Why- the
purpose of accounting
Second Level: bridge between two levels- qualitative characteristics and elements of
statements
Thrid Level: How- implementation including recognition, measurement, and disclosure
(assumptions, principles, and constraints)
Relevance - Answers -Accounting information must be capable of making a difference
in a decision. Thus, it must have predictive value, confirmatory value, or both.
Materiality - Answers -information is material if omitting it or misstating it could influence
decisions that users make on the basis of the reported financial information
Faithful representation - Answers -the numbers and descriptions match what really
existed or happened. This means that it is complete, neutral, and free from error
Enhancing qualities - Answers -comparability, verifiability, timeliness, understandibility
, Asset - Answers -Probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events
liabilities - Answers -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 - Answers -residual interest in the assets of an entity that remains after
deducting its liabilities. The ownership interest
investments by owners - Answers -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 in it
distributions to owners - Answers -decreases in net assets of a particular enterprise
resulting from transferring assets, rendering services, or incurring liabilities by the
enterprise to owners
comprehensive income - Answers -change in equity of an entity during a period from
transactions and other events and circumstances from nonowner sources
revenues - Answers -inflows or other enhancements of assets of an entity or settlement
of its liabilities during a period from delivering or producing goods, rendering services, or
any other operations
expenses - Answers -outflows or other using up of assets or incurrences of liabilities
during a period from delivering or producing goods, services, or other operations
gains - Answers -increases in equity from peripheral or incidental transactions of an
entity and from all other transactions
losses - Answers -decreases in equity from peripheral or incidental transactions of an
entity and from all other transactions
Economic entity - Answers -economic activity can be identified with a particular unit of
accountability
going concern - Answers -the company will have a long life. depreciation and
amortization policies are justifiable and appropriate only if we assume some
permanence to the company. Only where liquidation appears imminent is the
assumption inapplicable
monetary unit assumption - Answers -money is the common denominator of economic
activity and provides an appropriate basis for accounting measurement and analysis
