Financial Reporting Chapter 1 Questions And Answers 2025/2026

Financial Reporting Chapter 1Questions And Answers
2025/2026




Financial accounting is an information system that: - CORRECT ANSWER-(1)
Identifies, records, and communicates
(2) events of an economic entity to
(3) interested users


Financial Statements - CORRECT ANSWER-balance sheet
income statement
statement of cash flows
statement of owners' or stockholders' equity
Note disclosures


Information users - CORRECT ANSWER-Managers
investors
creditors
government agencies
etc.


What is the purpose of information presented in notes to the financial
statements?
(a) To provide disclosure required by generally accepted accounting principles

, (b) To correct improper presentation in the financial statements
(c) To provide recognition of amounts not included in the totals of financial
statements
(d) To present management's responses to auditor comments - CORRECT
ANSWER-(a) To provide disclosure required by generally accepted accounting
principles


Objectives of Financial Reporting - CORRECT ANSWER-to provide financial
information about the reporting entity that is useful to
- present and potential equity investors
- lenders
-other creditors
in making decisions in their capacity as capital providers


Parties involved in standard setting - CORRECT ANSWER-Three organizations:
1) Securities and Exchange Commission (SEC).
2) American Institute of Certified Public Accountants (AICPA).
3) Financial Accounting Standards Board (FASB).


Securities and Exchange Commission (SEC) - CORRECT ANSWER-- Established by
federal government
- Accounting and reporting for public companies
- Encouraged private standard-setting body
- SEC requires public companies to adhere to GAAP
- SEC oversight