Wall Street Prep Accounting Crash Course Exam
Questions With 100% Complete solutions 58pg
1. What is Accounting?: Accounting is the language of business; it is a standardset
| | | | | | | | | | | | |
| of rules for measuring a company's financial performance.
| | | | | | |
Assessing a company's financial performance is important
| | | | | |
| for:The firm's officers (managers and employees)
| | | | | |
Investors
| Lenders
| General public |
Standard financial statements serve as a "yardstick" of communicating
| | | | | | | |
financialperformance to the general public.
| | | | | |
2. Why is Accounting Important?: Enables managers to make corporate deci-
| | | | | | | | |
sions
|
Enables the general public to make investment decisions
| | | | | | |
3. Who Uses Accounting?: Used by a variety of organizations - from the
| | | | | | | | | | |
federalgovernment to non-profit organizations to small businesses to corporations
| | | | | | | | | |
We will discuss accounting rules as they pertain to publicly-traded companies
| | | | | | | | | |
1 |/ |29
,4. Accounting Regulations: Accounting attempts to standardize financial infor- | | | | | | |
mation and follows rules and regulations
| | | | | |
These rules are called Generally Accepted Accounting Principles (GAAP)
| | | | | | | |
In the US, the Securities and Exchange Commision (SEC) authorizes the
| | | | | | | | | |
FinancialAccounting Standards Board (FASB) to determine accounting rules
| | | | | | | | |
GAAP comes from the Statements of Financial Accounting Standards
| | | | | | | |
(SFAS)issued by the FASB
| | | | |
5. An Overview of the SEC: A US federal agency established bythe US Congressin
| | | | | | | | | | | | | |
| 1934
Primary mission is "to protect investors and maintain the integrity of the
| | | | | | | | | | |
securitiesmarkets"
| |
Division of Corporate Finance oversees FASB
| | | | |
6. An Overview of FASB: Established in 1973 as an independent body to carryout
| | | | | | | | | | | | |
| the function of codifying accounting standards on the behalf of the SEC
| | | | | | | | | | |
| Composed of seven full-time members appointed for five years by the
| | | | | | | | | |
| FinancialAccount Foundation (FAF) | | |
Decisions are influenced by: | | |
7. International Financial Reporting Standards (IFRS): Over 100 countries, | | | | | | |
| including the EU, UK, Canada, Australia, and Russia, have adopted a unified setof
| | | | | | | | | | | | |
| international accounting standards (IFRS) | | |
Although we have seen unprecedented convergence over the last few
| | | | | | | | |
yearsbetween US GAAP and IFRS, some differences remain
| | | | | | | | |
2 |/ |29
,8. Assumption 1: Accounting Entity: A company is considered a separate "liv- | | | | | | | | | |
ing" enterprise, apart from its owners
| | | | | |
In other words, a corporation is a "fictional" being
| | | | | | | |
9. Assumption 2: Going Concern: A company is considered a "going concern"for | | | | | | | | | | |
the foreseeable future; it is assumed to remain in existence indefinitely
| | | | | | | | | | |
10. Assumption 3: Measurement: Financial statements can only show measur- | | | | | | | |
able activities of a corporation such as its quantifiable resources, its liability, amount of
| | | | | | | | | | | | | |
| taxes it is facing, etc.
| | | |
11. Assumption 4: Periodicity: Companies are required to file annual and | | | | | | | | |
interimreports
| |
In the US, quarterly and annual financial reports are required
| | | | | | | | |
An accounting year (fiscal year) is frequently aligned with the calendar year
| | | | | | | | | | |
12. Four Underlying Assumptions of Accounting: (1) Accounting Entity
| | | | | | |
(2) Going Concern |
(3) Measurement
(4) Periodicity
13. Principle 1: Historical Cost: Financial statements report companies' re-
| | | | | | | |
sources at an initial historical cost
| | | | | |
3 |/ |29
, Why?
Represents the easiest measurement method without a need for appraisal
| | | | | | | | |
andrevaluation
| |
Marking resources up to fair value allows for management discretion and subjec-
| | | | | | | | | | |
tivity, which US GAAP attempts to minimize by using historical cost
| | | | | | | | | | |
Note: IFRS allows you to write up the asset to fair value, but most companies
| | | | | | | | | | | | | |
usehistorical value anyways
| | | |
14. Principles 2 and 3: Accrual Accounting (Revenue Recognition and Match-ing
| | | | | | | | | |
Principle): Governs the company's timing in recording its revenues (i.e. sales) and
| | | | | | | | | | | |
| associated expenses |
2) Revenue Recognition: Accrual basis of accounting dictates that revenues mustbe
| | | | | | | | | |
| recorded when earned and measurable
| | | |
3) Matching Principle:Under the matching principle, costs associated with makinga
| | | | | | | | | |
| product must be recorded during the same period as revenue generated from that
| | | | | | | | | | | |
| product
Exercise Answer: 1) 1/4/15; 2) 1/4/15
| | | | |
15. Whycan't companies immediatelyrecord these revenues and expenses?-
| | | | | | | |
: According to the revenue recognition principle, a companycannot recordrevenue
| | | | | | | | | | |
4 |/ |29
Questions With 100% Complete solutions 58pg
1. What is Accounting?: Accounting is the language of business; it is a standardset
| | | | | | | | | | | | |
| of rules for measuring a company's financial performance.
| | | | | | |
Assessing a company's financial performance is important
| | | | | |
| for:The firm's officers (managers and employees)
| | | | | |
Investors
| Lenders
| General public |
Standard financial statements serve as a "yardstick" of communicating
| | | | | | | |
financialperformance to the general public.
| | | | | |
2. Why is Accounting Important?: Enables managers to make corporate deci-
| | | | | | | | |
sions
|
Enables the general public to make investment decisions
| | | | | | |
3. Who Uses Accounting?: Used by a variety of organizations - from the
| | | | | | | | | | |
federalgovernment to non-profit organizations to small businesses to corporations
| | | | | | | | | |
We will discuss accounting rules as they pertain to publicly-traded companies
| | | | | | | | | |
1 |/ |29
,4. Accounting Regulations: Accounting attempts to standardize financial infor- | | | | | | |
mation and follows rules and regulations
| | | | | |
These rules are called Generally Accepted Accounting Principles (GAAP)
| | | | | | | |
In the US, the Securities and Exchange Commision (SEC) authorizes the
| | | | | | | | | |
FinancialAccounting Standards Board (FASB) to determine accounting rules
| | | | | | | | |
GAAP comes from the Statements of Financial Accounting Standards
| | | | | | | |
(SFAS)issued by the FASB
| | | | |
5. An Overview of the SEC: A US federal agency established bythe US Congressin
| | | | | | | | | | | | | |
| 1934
Primary mission is "to protect investors and maintain the integrity of the
| | | | | | | | | | |
securitiesmarkets"
| |
Division of Corporate Finance oversees FASB
| | | | |
6. An Overview of FASB: Established in 1973 as an independent body to carryout
| | | | | | | | | | | | |
| the function of codifying accounting standards on the behalf of the SEC
| | | | | | | | | | |
| Composed of seven full-time members appointed for five years by the
| | | | | | | | | |
| FinancialAccount Foundation (FAF) | | |
Decisions are influenced by: | | |
7. International Financial Reporting Standards (IFRS): Over 100 countries, | | | | | | |
| including the EU, UK, Canada, Australia, and Russia, have adopted a unified setof
| | | | | | | | | | | | |
| international accounting standards (IFRS) | | |
Although we have seen unprecedented convergence over the last few
| | | | | | | | |
yearsbetween US GAAP and IFRS, some differences remain
| | | | | | | | |
2 |/ |29
,8. Assumption 1: Accounting Entity: A company is considered a separate "liv- | | | | | | | | | |
ing" enterprise, apart from its owners
| | | | | |
In other words, a corporation is a "fictional" being
| | | | | | | |
9. Assumption 2: Going Concern: A company is considered a "going concern"for | | | | | | | | | | |
the foreseeable future; it is assumed to remain in existence indefinitely
| | | | | | | | | | |
10. Assumption 3: Measurement: Financial statements can only show measur- | | | | | | | |
able activities of a corporation such as its quantifiable resources, its liability, amount of
| | | | | | | | | | | | | |
| taxes it is facing, etc.
| | | |
11. Assumption 4: Periodicity: Companies are required to file annual and | | | | | | | | |
interimreports
| |
In the US, quarterly and annual financial reports are required
| | | | | | | | |
An accounting year (fiscal year) is frequently aligned with the calendar year
| | | | | | | | | | |
12. Four Underlying Assumptions of Accounting: (1) Accounting Entity
| | | | | | |
(2) Going Concern |
(3) Measurement
(4) Periodicity
13. Principle 1: Historical Cost: Financial statements report companies' re-
| | | | | | | |
sources at an initial historical cost
| | | | | |
3 |/ |29
, Why?
Represents the easiest measurement method without a need for appraisal
| | | | | | | | |
andrevaluation
| |
Marking resources up to fair value allows for management discretion and subjec-
| | | | | | | | | | |
tivity, which US GAAP attempts to minimize by using historical cost
| | | | | | | | | | |
Note: IFRS allows you to write up the asset to fair value, but most companies
| | | | | | | | | | | | | |
usehistorical value anyways
| | | |
14. Principles 2 and 3: Accrual Accounting (Revenue Recognition and Match-ing
| | | | | | | | | |
Principle): Governs the company's timing in recording its revenues (i.e. sales) and
| | | | | | | | | | | |
| associated expenses |
2) Revenue Recognition: Accrual basis of accounting dictates that revenues mustbe
| | | | | | | | | |
| recorded when earned and measurable
| | | |
3) Matching Principle:Under the matching principle, costs associated with makinga
| | | | | | | | | |
| product must be recorded during the same period as revenue generated from that
| | | | | | | | | | | |
| product
Exercise Answer: 1) 1/4/15; 2) 1/4/15
| | | | |
15. Whycan't companies immediatelyrecord these revenues and expenses?-
| | | | | | | |
: According to the revenue recognition principle, a companycannot recordrevenue
| | | | | | | | | | |
4 |/ |29
