Intermediate Accounting, I (Exam 1) Chapters 1-5 Questions and answers with Complete Solutions | 100% Pass

Intermediate Accounting, I (Exam 1) Chapters 1-5 Questions and answers with Complete Solutions | 100% Pass objective of financial reporting - provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors general-purpose financial statements - provide financial reporting information to a wide variety of users accrual basis accounting - 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) - 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 - 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 - These updates amend the Accounting Standards Codification, which represents the source of authoritative accounting standards Four primary financial statements - Balance Sheet Income Statement Statement of Cash Flows Statement of Owner's/Stockholders' Equity Conceptual Framework - establishes the concepts that underlie financial reporting. Relevance (Fundamental Quality) - 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 - if it has value as an input to predictive processes used by investors to form their own expectations about the future Confirmatory value - relevant information also helps users confirm or correct prior expectations Faithful Representation (fundamental quality) - means that the numbers and descriptions match what really existed or happened Completeness - means that all the information that is necessary for faithful representation is provided Neutrality - 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 - more accurate (faithful representation) of a financial item Comparability (Enhancing Qualities) - enables users to identify the real similarities and differences in economic events between companies. Consistency - when a company applies the same accounting treatment to similar events, from period to period. Verifiability - occurs when independent measurers, using the same methods, obtain similar results. Timeliness - having information available to decision-makers before it loses its capacity to influence decisions. Understandability - 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.