INTERMEDIATE ACCOUNTING CH. 1 (KIESO, WEYGANDT, WARFIELD 16E) QUESTIONS AND ANSWERS

INTERMEDIATE ACCOUNTING CH. 1
(KIESO, WEYGANDT, WARFIELD 16E)
QUESTIONS AND ANSWERS
ManagerialbgAccountingbg-bganswer--
Thebgprocessbgofbgidentifying,bgmeasuring,bganalyzing,bgandbgcommunicatingbg
financialbginformationbgneededbgbybgmanagementbgtobgplan,bgcontrol,bgandbge
valuatebgabgcompany'sbgoperations.

FinancialbgAccountingbg-bganswer--
Thebgprocessbgthatbgculminatesbginbgthebgpreparationbgofbgfinancialbgreportsb
gonbgthebgenterprisebgforbgusebgbybgbothbginternalbgandbgexternalbgparties.bg
Usersbgincludebginvestors,bgcreditors,bgmanagers,bgunions,bgandbggovernmentb
gentities.

Essentialbgcharacteristicsbgofbgaccountingbg-bganswer--
(1)bgThebgidentification,bgmeasurement,bgandbgcommunicationbgofbgfinancialbgi
nformationbgaboutbg(2)bgeconomicbgentitiesbgtobg(3)bginterestedbgparties.

Objectivebgofbgfinancialbgreportingbg-bganswer--Thebgobjectivebgofbggeneral-
purposebgfinancialbgreportingbgisbgtobgprovidebgfinancialbginformationbgaboutbgt
hebgreportingbgentitybgthatbgisbgusefulbgtobgpresentbgandbgpotentialbgequitybgi
nvestors,bglenders,bgandbgotherbgcreditorsbginbgdecisionsbgaboutbgprovidingbgr
esourcesbgtobgthebgentity.

General-purposebgfinancialbgstatementsbgprovide:bg-bganswer--
atbgthebgleastbgcostbgthebgmostbgusefulbginformationbgpossible.

Primarybgusersbgofbggeneral-purposebgfinancialbgstatements:bg-bganswer--
investorsbgandbgcreditors.bg*Primarybguserbggroupsbgarebgnotbgmanagement,bg
regulators,bgorbgsomebgotherbgnon-investorbggroups.

Entitybgperspective:bg-bganswer--
companiesbgarebgviewedbgasbgseparatebgandbgdistinctbgfrombgtheirbgownersbg
(presentbgshareholders).

investorsbgarebginterestedbgin:bg-bganswer--
(1)bgthebgcompany'sbgabilitybgtobggeneratebgnetbgcashbginflowsbgandbg(2)bgm
anagement'sbgabilitybgtobgprotectbgandbgenhancebgthebgcapitalbgproviders'bginv
estments.

Accrual-basisbgaccounting:bg-bganswer--
ensuresbgthatbgabgcompanybgrecordsbgeventsbgthatbgchangebgitsbgfinancialbgs
tatementsbginbgthebgperiodbginbgwhichbgthebgeventsbgoccur,bgratherbgthanbgo

, nlybginbgthebgperiodsbginbgwhichbgitbgreceivesbgorbgpaysbgcash.bgAbgcompan
y:bg
(1)bgRecognizesbgrevenuesbgwhenbgitbgprovidesbgthebggoodsbgorbgservicesbgr
atherbgthanbgwhenbgitbgreceivesbgcash.
(2)bgRecognizesbgexpensesbgwhenbgitbgincursbgthembgratherbgthanbgwhenbgit
bgpaysbgthem.

"Generallybgaccepted"bg-bganswer--
Meansbgeitherbgthatbganbgauthoritativebgaccountingbgrule-
makingbgbodybghasbgestablishedbgabgprinciplebgofbgreportingbginbgabggivenbg
areabgorbgthatbgoverbgtimebgabggivenbgpracticebghasbgbeenbgacceptedbgasbg
appropriatebgbecausebgofbgitsbguniversalbgapplication.

Threebgorganizationsbgthatbgarebginstrumentalbginbgthebgdevelopmentbgofbgfina
ncialbgaccountingbgstandardsbg(GAAP)bginbgthebgUnitedbgStates:bg-bganswer--
1.bgSEC
2.bgAICPA
3.bgFASB

SecuritiesbgandbgExchangebgCommissionbg-bganswer--
~Camebgintobgexistencebgafterbgstockbgmarketbgcrashbgofbg1929/
GreatbgDepressionbg--
>bgcallsbgforbgincreasedbggovernmentbgregulationbgofbgbusiness,bgespeciallybgf
inancialbginstitutionsbgandbgthebgstockbgmarket.bgSECbgwasbgdevelopedbgtobg
helpbgdevelopbgandbgstandardizebgfinancialbginformationbgpresentedbgtobgstock
holders.bgAdministersbgthebgSecuritiesbgExchangebgActbgofbg1934.bgHasbgtheb
gbroadbgpowerbgtobgprescribebgaccountingbgpracticesbgandbgstandardsbgtobgb
ebgemployedbgbybgcompaniesbgthatbgfallbgwithinbgitsbgjurisdiction.

Generally,bgthebgSECbgreliesbgonbgthebg____bgtobgdevelopbgaccountingbgstan
dards.bg-bganswer--FASB

IfbgthebgSECbgbelievesbgthatbganbgaccountingbgorbgdisclosurebgirregularitybgex
istsbgregardingbgthebgformbgorbgcontentbgofbgthebgfinancialbgstatementsbg(ofbg
companiesbglistedbgonbgthebgstockbgexchange)...bg-bganswer--
itbgsendsbgabgdeficiencybgletterbgtobgthebgcompany.bgCompaniesbgusuallybgre
solvebgthesebgdeficiencies,bgbutbgifbgdisagreementbgcontinues,bgthebgSECbgm
aybgissuebgabg"STOPbgORDER,"bgwhichbgpreventsbgthebgregistrantbgfrombgiss
uingbgorbgtradingbgsecuritiesbgonbgthebgexchanges.

WhatbgorganizationbgdoesbgthebgSECbgrequirebgregistrantsbgtobgadherebgto?
bg-bganswer--GAAP

AmericanbgInstitutebgofbgCertifiedbgPublicbgAccountantsbg-bganswer--
ThebgnationalbgprofessionalbgorganizationbgofbgpracticingbgCertifiedbgPublicbgA
ccountants;bganbgimportantbgcontributorbgtobgthebgdevelopmentbgofbgGAAP.

TimelinebgofbgAICPA:bg-bganswer--
1.bgAppointedbgthebgCommitteebgonbgAccountingbgProcedurebg(CAP)bginbg193
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