Wall street prep accounting crash course

WALL STREET PREP EXAM (ACC
b b b b




OUNTING CRASH COURSE)QUES
b b b




TIONS AND CORRECT ANSWERS
b b b b




2024/2025.




1b/b30

,1. WhatbisbAccounting?:bAccountingbisbtheblanguagebofbbusiness;bitbisbabstandardbsetbofbrulesbforbmeasuringbabc
ompany'sbfinancialbperformance.
Assessingbabcompany'sbfinancialbperformancebisbimportantbfor:bThebfirm'sbofficersb(managersba
ndbemployees)
InvestorsbLendersb
Generalbpublic
Standardbfinancialbstatementsbservebasbab"yardstick"bofbcommunicatingbfinancialbperformancebtobthebgeneralbpublic.
2. WhybisbAccountingbImportant?:bEnablesbmanagersbtobmakebcorporatebdeci-
sionsbEnablesbthebgeneralbpublicbtobmakebinvestmentbdecisions
b



3. WhobUsesbAccounting?:bUsedbbybabvarietybofborganizationsb-bfrobgovernmentbtobnon- m the federal
b b


profitborganizationsbtobsmallbbusinessesbtobcorporbWebwillbdiscussbaccountingbrulesbasbtheybpertai ations ompanie b



nbtobpublicly-tradedbc s
4. AccountingbRegulations:bAccountingbattemptsbtobstandardizebfinancialbinforma-
tionbandbfollowsbrulesbandbregulations
b



ThesebrulesbarebcalledbGenerallybAcceptedbAccountingbPrinciplesb(GAAP)
InbthebUS,bthebSecuritiesbandbExchangebCommisionb(SEC)bauthorizesbthebFinancialbAccountingbStandardsbBoardb(FASB)btobd
erminebaccountingbrules
GAAPbcomesbfrombthebStatementsbofbFinancialbAccountingbStandardsb(SFAS)bissuedbbybthebFASB
5. AnbOverviewbofbthebSEC:bAbUSbfederalbagencybestablishedbbybthebUSbCongressbinb1934bP
rimarybmissionbisb"tobprotectbinvestorsbandbmaintainbthebintegritybofbtbmarkets"
DivisionbofbCorporatebFinanceboverseesbFASB he securities
b



6. AnbOverviewbofbFASB:bEstablishedbinb1973basbanbindependentbbodybtobcarryboutbthebfunctionbofbcodifyingbaccountingbst
andardsbonbthebbehalfbofbthebS EC
Composedbofbsevenbfull- Financial
timebmembersbappointedbforbfivebyearsbbybthebAccountbFoundationb(FAF)bDecisionsbarebinfluencedb
by:
7. Internationalb Financialb Reportingb Standardsb (IFRS):b Overb 100b countries,b in-
b cludingb theb EU,b UK,b Canada,bAustralia,bandbRussia,bhavebadoptedbabunifiedbsetbofbinternationalbaccountingbstandardsb(I
FRS)
Althoughb web haveb seenb unprecedentedb convergenceb overb theb lastb fewb yearsb be-
b tweenb USb GAAPb andb IFRS,b somebdifferencesbremain




2b/b30

, 8. Assumptionb1:bAccountingbEntity:bAbcompanybisbconsideredbabseparateb"living"benterprise,bapartbfrombitsbownersbI
nbotherbwords,babcorporationbisbab"fictional"bbeing
9. Assumptionb2:bGoingbConcern:bAbcompanybisbconsideredbab"goingbconcern"bforbthebforeseeablebfuture;bitbisbassumedbt
obremainbinbexistencebindefinitely
10. Assumptionb3:bMeasurement:bFinancialbstatementsbcanbonlybshowbmeasurablebactivitiesbofbabcorporationbsuchbasbitsbq
uantifiablebresources,bitsbliability,bamountbofbtaxesbitbisbfacing,betc.
11. Assumptionb4:bPeriodicity:bCompaniesbarebrequiredbtobfilebannualbandbinterimbreportsbI
nbthebUS,bquarterlybandbannualbfinancialbreportsbarebrequired
Anbaccountingbyearb(fiscalbyear)bisbfrequentlybalignedbwithbthebcalendarbyear
12. FourbUnderlyingbAssumptionsbofbAccounting:b(1)bAccountingbEntity

(2) Going Concernb



(3) Measurement
(4) Periodicity
13. Principleb1:bHistoricalbCost:bFinancialbstatementsbreportbcompanies'bresourcesbatbanbinitialbhistoricalbcostb
Why?
Representsbthebeasiestbmeasurementbmethodbwithoutbabneedbforbappraisalbandbrevaluation
Markingbresourcesbupbtobfairbvalueballowsbforbmanagementbdiscretionbandbsubjectivity,bwhichbUSbGAAPbattemptsbtobminimi
zebbybusingbhistoricalbcost
Note:bIFRSballowsbyoubtobwritebupbthebassetbtobfairbvalue,bbutbmostbcompaniesbusebhistoricalbvaluebanyways
14. Principlesb2bandb3:bAccrualbAccountingb(RevenuebRecognitionbandbMatch-
b ingbPrinciple):bGovernsbthebcompany'sbtimingbinbrecordingbitsbrevenuesb(i.e.bsales)bandbassociatedbexpenses

2) Revenue Recognition: Accrual basis of accounting dictates that revenues must be recorded when earned and
b b b b b b b b b b b b b b b


measurable
with making
b
3) Matching Principle: Under the matching principle, costs associated
b b b b b b b


abproductbmustbbebrecordedbduringbthebsamebperiodbasbrevenuebgeneratedbfrombthatbproduct


ExercisebAnswer:b1)b1/4/15;b2)b1/4/15
15. Whybcan'tbcompaniesbimmediatelybrecordbthesebrevenuesbandbexpenses?-
:b Accordingb tob theb revenueb recognitionb principle,b ab companyb cannotb recordb revenueb untilb thatb orderb isb shippedb tob abc
ustomerb(onlybthen,bisbthebrevenuebactuallybearned)bandbcollectionbfrombthatbcustomerbisbreasonablybassured



3b/b30