Accounting is important for - CORRECT ANSWER -firm's officers, investors, lenders, and the general
public
Generally Accepted Accounting Principles (GAAP) - CORRECT ANSWER -a set of accounting standards
that is used in the preparation of financial statements
Securities and Exchange Commission (SEC) - CORRECT ANSWER --division of corporate finance: oversees
financial reporting by corporations
Financial Accounting Standards Board (FASB) - CORRECT ANSWER -Types of pronouncements:
-Statements of Financial Accounting Standards
-Interpretations
-Financial Accounting Concepts
-Emerging Issues Task Force Statements
International Financial Reporting Standards (IFRS) - CORRECT ANSWER -unified set of international
accounting standards
Assumption 1: Accounting Entity - CORRECT ANSWER --a company is considered a separate "living"
enterprise apart from its owners
-it is engaged in clearly-defined activities
-regularly reports its financial health to the general publics
,-pays taxes and can file lawsuits
Assumption 2: Going Concern - CORRECT ANSWER --a corporation is assumed to remain in existence
indefinitely
-assets and liabilities are recognized values that assume the company will not have to sell them at
liquidation
Assumption 3: Measurement - CORRECT ANSWER --financial statements must be reported in the
national monetary unit
-can only show measurable activities of a corporation
Assumption 4: Periodicity - CORRECT ANSWER --companies are required to file annual and interim
reports
-a fiscal year is frequently but not always aligned with the calendar year
Principle 1: Historical Cost - CORRECT ANSWER --financial statements report companies' resources at an
initial historical cost
-represents the easiest measurement method without a need a for appraisal and revaluation
-minimized management discretion and subjectivity
-IFRS is more willing to allow this subjectivity to avoid misrepresenting the true value of assets
Principle 2: Revenue Recognition - CORRECT ANSWER -accrual basis of accounting dictates that revenues
must be recorded when earned and measurable
-cannot be recorded until the order is shipped to a customer and collection from that customer (who
uses a credit card) is reasonably assured
Principle 3: Matching Principle - CORRECT ANSWER -costs associated with making a product must be
recorded during the same period as revenue generated from that product
Principle 4: Full Disclosure - CORRECT ANSWER -companies must reveal all relevant economic
information that they determine to make a difference to its users
,-should be accomplished in: financial statements, notes to financial statements, and supplementary
information
Contraint 1: Estimates & Judgements - CORRECT ANSWER -certain measurements cannot be performed
completely accurately and must therefore utilize conservative estimates and judgements
Constraint 2: Materiality - CORRECT ANSWER -inclusion and disclosure of financial transactions in
financial statements hinge on their size and effect on the company performing them
-materiality varies across different entities
Constraint 3: Consistency - CORRECT ANSWER -for each company, the preparation financial statements
must utilize measurement techniques and assumptions which are consistent from one period to another
Constraint 4: Conservatism - CORRECT ANSWER -financial statements should be prepared with a
downward measurement bias
-assets and revenues should not be overstates, while liabilities and expenses should not be understated
Form 10-K - CORRECT ANSWER --required annual filing
-must be filed within 60-90 days within year end
-provides the most detailed overview of companies' financial operations and regulations governing them
Form 10-Q - CORRECT ANSWER --publicly-traded companies file a quarterly report with the SEC for the
first three quarters
-must be filed within 40-45 days of quarter end
10-K vs. 10-Q - CORRECT ANSWER --10-K's are more detailed
-10-K reports are audited by an independent firm while 10-Q filings are reviewed by a CPA but are
unaudited
Form 8-K - CORRECT ANSWER -required filing any time a company undergoes or announces a materially
significant event such as a n earnings press release, an acquisition, a disposal of assets, bankruptcy, etc.
-usually filed within 4 days of the event
, Form 14A (Proxy Statement) - CORRECT ANSWER --required filing prior to companies' annual
shareholder meetings
-contains detailed information about top officers and their compensations
Important Sections of the 10-K - CORRECT ANSWER --Item 6: selected financial data
-Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
-Item 8: Financial Statements and Supplementary Data
The regulating body that oversees the development of accounting standards in the U.S. is: - CORRECT
ANSWER -FASB
FASB formulates accounting standards through the issuance of Statements of Financial Accounting
Standards (SFAS). These statements make up the body of accounting rules known as the Generally
Accepted Accounting Principles (GAAP). IASB oversees international financial reporting standards (IFRS).
Which of the following statements is TRUE? - CORRECT ANSWER -GAAP requires that firms show
recorded values for acquired intangible assets such as patents and trademarks on their financial
statements
GAAP requires that firms only show measurable activities, such as the value of acquired intangible
assets. Assets such as employee, customer loyalty and internally-developed trademarks are not shown
on financial statements because they're difficult to quantify.
Which of the following statements is TRUE? - CORRECT ANSWER -Publicly traded US companies are
required to file three 10-Q's and one 10-K annually.
Publicly-traded US companies must file three quarterly (10-Q) reports at the end of their 1Q, 2Q and 3Q,
and a 10-K at the end of their fiscal year.
The income statement is designed to measure: - CORRECT ANSWER -The profits of a firm over a period
of time.
public
Generally Accepted Accounting Principles (GAAP) - CORRECT ANSWER -a set of accounting standards
that is used in the preparation of financial statements
Securities and Exchange Commission (SEC) - CORRECT ANSWER --division of corporate finance: oversees
financial reporting by corporations
Financial Accounting Standards Board (FASB) - CORRECT ANSWER -Types of pronouncements:
-Statements of Financial Accounting Standards
-Interpretations
-Financial Accounting Concepts
-Emerging Issues Task Force Statements
International Financial Reporting Standards (IFRS) - CORRECT ANSWER -unified set of international
accounting standards
Assumption 1: Accounting Entity - CORRECT ANSWER --a company is considered a separate "living"
enterprise apart from its owners
-it is engaged in clearly-defined activities
-regularly reports its financial health to the general publics
,-pays taxes and can file lawsuits
Assumption 2: Going Concern - CORRECT ANSWER --a corporation is assumed to remain in existence
indefinitely
-assets and liabilities are recognized values that assume the company will not have to sell them at
liquidation
Assumption 3: Measurement - CORRECT ANSWER --financial statements must be reported in the
national monetary unit
-can only show measurable activities of a corporation
Assumption 4: Periodicity - CORRECT ANSWER --companies are required to file annual and interim
reports
-a fiscal year is frequently but not always aligned with the calendar year
Principle 1: Historical Cost - CORRECT ANSWER --financial statements report companies' resources at an
initial historical cost
-represents the easiest measurement method without a need a for appraisal and revaluation
-minimized management discretion and subjectivity
-IFRS is more willing to allow this subjectivity to avoid misrepresenting the true value of assets
Principle 2: Revenue Recognition - CORRECT ANSWER -accrual basis of accounting dictates that revenues
must be recorded when earned and measurable
-cannot be recorded until the order is shipped to a customer and collection from that customer (who
uses a credit card) is reasonably assured
Principle 3: Matching Principle - CORRECT ANSWER -costs associated with making a product must be
recorded during the same period as revenue generated from that product
Principle 4: Full Disclosure - CORRECT ANSWER -companies must reveal all relevant economic
information that they determine to make a difference to its users
,-should be accomplished in: financial statements, notes to financial statements, and supplementary
information
Contraint 1: Estimates & Judgements - CORRECT ANSWER -certain measurements cannot be performed
completely accurately and must therefore utilize conservative estimates and judgements
Constraint 2: Materiality - CORRECT ANSWER -inclusion and disclosure of financial transactions in
financial statements hinge on their size and effect on the company performing them
-materiality varies across different entities
Constraint 3: Consistency - CORRECT ANSWER -for each company, the preparation financial statements
must utilize measurement techniques and assumptions which are consistent from one period to another
Constraint 4: Conservatism - CORRECT ANSWER -financial statements should be prepared with a
downward measurement bias
-assets and revenues should not be overstates, while liabilities and expenses should not be understated
Form 10-K - CORRECT ANSWER --required annual filing
-must be filed within 60-90 days within year end
-provides the most detailed overview of companies' financial operations and regulations governing them
Form 10-Q - CORRECT ANSWER --publicly-traded companies file a quarterly report with the SEC for the
first three quarters
-must be filed within 40-45 days of quarter end
10-K vs. 10-Q - CORRECT ANSWER --10-K's are more detailed
-10-K reports are audited by an independent firm while 10-Q filings are reviewed by a CPA but are
unaudited
Form 8-K - CORRECT ANSWER -required filing any time a company undergoes or announces a materially
significant event such as a n earnings press release, an acquisition, a disposal of assets, bankruptcy, etc.
-usually filed within 4 days of the event
, Form 14A (Proxy Statement) - CORRECT ANSWER --required filing prior to companies' annual
shareholder meetings
-contains detailed information about top officers and their compensations
Important Sections of the 10-K - CORRECT ANSWER --Item 6: selected financial data
-Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
-Item 8: Financial Statements and Supplementary Data
The regulating body that oversees the development of accounting standards in the U.S. is: - CORRECT
ANSWER -FASB
FASB formulates accounting standards through the issuance of Statements of Financial Accounting
Standards (SFAS). These statements make up the body of accounting rules known as the Generally
Accepted Accounting Principles (GAAP). IASB oversees international financial reporting standards (IFRS).
Which of the following statements is TRUE? - CORRECT ANSWER -GAAP requires that firms show
recorded values for acquired intangible assets such as patents and trademarks on their financial
statements
GAAP requires that firms only show measurable activities, such as the value of acquired intangible
assets. Assets such as employee, customer loyalty and internally-developed trademarks are not shown
on financial statements because they're difficult to quantify.
Which of the following statements is TRUE? - CORRECT ANSWER -Publicly traded US companies are
required to file three 10-Q's and one 10-K annually.
Publicly-traded US companies must file three quarterly (10-Q) reports at the end of their 1Q, 2Q and 3Q,
and a 10-K at the end of their fiscal year.
The income statement is designed to measure: - CORRECT ANSWER -The profits of a firm over a period
of time.
