Intermediate Accounting I (Exam 1) Chapters 1-5 Questions with Verified Solutions

Intermediate Accounting I (Exam 1) Chapters 1-5 Questions with Verified Solutions objective of financial reporting - answerprovide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors general-purpose financial statements - answerprovide financial reporting information to a wide variety of users accrual basis accounting - answerensures 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) - answercommon 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 - answerestablish 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 - answerThese updates amend the Accounting Standards Codification, which represents the source of authoritative accounting standards Four primary financial statements - answerBalance Sheet Income Statement Statement of Cash Flows Statement of Owner's/Stockholders' Equity Conceptual Framework - answerestablishes the concepts that underlie financial reporting. Relevance (Fundamental Quality) - answeraccounting 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 - answerif it has value as an input to predictive processes used by investors to form their own expectations about the future Confirmatory value - answerrelevant information also helps users confirm or correct prior expectations Faithful Representation (fundamental quality) - answermeans that the numbers and descriptions match what really existed or happened Completeness - answermeans that all the information that is necessary for faithful representation is provided Neutrality - answermeans 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 - answermore accurate (faithful representation) of a financial item Comparability (Enhancing Qualities) - answerenables users to identify the real similarities and differences in economic events between companies. Consistency - answerwhen a company applies the same accounting treatment to similar events, from period to period. Verifiability - answeroccurs when independent measurers, using the same methods, obtain similar results. Timeliness - answerhaving information available to decision-makers before it loses its capacity to influence decisions. Understandability - answerDecision-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 - answerprobably future economic benefits obtained or controlled by a particular entity as a result of past transactions or events Liabilities - answerProbable 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 - answerResidual interest in the assets of an entity that remains after deducting its liabilities.