Intermediate Accounting I Exam 1 - Chapters 1-5 Exam Prep, Practice Questions & Verified Answers
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
Stuvia 2026-2027
, Intermediate Accounting I Exam 1 - Chapters 1-5 Exam Prep, Practice Questions & Verified Answers
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.
Assets probably future economic benefits obtained or controlled by a particular entity as a
result of past transactions or events
Liabilities Probable 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 Residual interest in the assets of an entity that remains after deducting its liabilities.
Investments By Owners Increases in net assets of a particular enterprise resulting from transfers to it from
other entities of something of value to obtain or increase ownership interests (or
equity) in it.
Distributions to Owners Decreases in net assets of a particular enterprise resulting from transferring assets,
rendering services, or incurring liabilities by the enterprise to owners.
Comprehensive Income Change in equity (net assets) of an entity during a period from transactions and
other events and circumstances in equity during a period except those resulting
from investments by owners and distributions to owners.
Revenues Inflows or other enhancements of assets of an entity or settlement of its liabilities
during a period from delivering or producing goods, rendering services, or carrying
out other activities that constitute the entity's ongoing major or central operations
Expenses Outflows or other using up of assets or incurrences of liabilities during a period
Gains Increases in equity (net assets) from peripheral or incidental transactions of an
entity from all other transactions and other events and circumstances affecting the
entity during a period except those that result from revenues or investments by
owners.
Losses Decreases in equity (net assets)
Stuvia 2026-2027
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
Stuvia 2026-2027
, Intermediate Accounting I Exam 1 - Chapters 1-5 Exam Prep, Practice Questions & Verified Answers
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.
Assets probably future economic benefits obtained or controlled by a particular entity as a
result of past transactions or events
Liabilities Probable 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 Residual interest in the assets of an entity that remains after deducting its liabilities.
Investments By Owners Increases in net assets of a particular enterprise resulting from transfers to it from
other entities of something of value to obtain or increase ownership interests (or
equity) in it.
Distributions to Owners Decreases in net assets of a particular enterprise resulting from transferring assets,
rendering services, or incurring liabilities by the enterprise to owners.
Comprehensive Income Change in equity (net assets) of an entity during a period from transactions and
other events and circumstances in equity during a period except those resulting
from investments by owners and distributions to owners.
Revenues Inflows or other enhancements of assets of an entity or settlement of its liabilities
during a period from delivering or producing goods, rendering services, or carrying
out other activities that constitute the entity's ongoing major or central operations
Expenses Outflows or other using up of assets or incurrences of liabilities during a period
Gains Increases in equity (net assets) from peripheral or incidental transactions of an
entity from all other transactions and other events and circumstances affecting the
entity during a period except those that result from revenues or investments by
owners.
Losses Decreases in equity (net assets)
Stuvia 2026-2027
