ACC 301 EXAM 1 STUDY GUIDE
Objective of Financial Reporting - Answers -Provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in their capacity as capital providers. Make decisions about providing
resources to the entity
Qualitative Characteristics - Answers -fundamental, enhancing
Fundamental - Answers -relevance, faithful representation
Relevance - Answers -relevant if makes difference in decision; predictive value,
confirmatory value, materality
Predictive Value - Answers -Predicts trends of business
Confirmatory Value - Answers -Confirming or correcting any past predictions
Materiality - Answers -Determines if the size is big enough to be relevant
Faithful representation - Answers -Completeness, neutrality, free from error
Enhancing qualities - Answers -comparability, verifiability, timeliness, understandability
Comparability - Answers -Comparable information enables comparisons within the
entity and across entities
Verifability - Answers -Assure users that information represents faithfully what it
purports to represent
Timeliness - Answers -Provides information in time for decision-makers in time to be
capable of influencing their decision
Understandability - Answers -Financial information is understandable or
comprehensible to users with reasonable knowledge of business and economic
activities
Economic Entity Assumption - Answers -Economic activity can be identified with
particular unit of accountability
Going Concern Assumption - Answers -Company will have long life
Monetary Unit Assumption - Answers -Unit is understandable, relevant, universally
available
, Periodicity - Answers -Company can separate economic activity into artificial periods of
time
Measurement Principles - Answers -Cost (or Historical Cost Principle, Fair Value
Principle)
Cost (Historical Cost) Principle - Answers -Report assets and liabilities on basis of
acquisition price
Fair Value Principle - Answers -Rational and unbiased estimate of potential market
price
Revenue Recognition - Answers -Revenues are recorded when they are realized and
are earned no matter when cash is received
Matching (Expense Recognition) Principle - Answers -Expenses are recorded in the
same period as the revenues to which they relate
Full Disclosure Principle - Answers -Include all info that would affect reader's
understanding
Cost Constraint - Answers -Excessively expensive to report certain info on financial
statements
Paid-in capital - Answers -Total amount have been invested into corporations to
become shareholders. Ex- common stock, preferred stock, PIC of excess of par
Retained Earnings - Answers -total of amount invested into corporation and kept
Current Assets - Answers -Open for 1 year or less (cash; securities; accounts
receivable, net; prepaid expenses)
Long-term assets - Answers -Open for a year or more (long-term investments; property,
plant and equipment; intangible assets; natural resources)
Intangible assets - Answers -Patents, copyright, trademark, amortization (if useful life is
known)
Comprehensive Income - Answers -Net income and other comprehensive income
Investments by owners - Answers -Increase owner's equity during a period resulting
from transfers to the company from other parties of something of value so they gain
ownership
Distributions to owners - Answers -Decrease equity resulting from company transferring
assets to its owners as owners (dividends)
Objective of Financial Reporting - Answers -Provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in their capacity as capital providers. Make decisions about providing
resources to the entity
Qualitative Characteristics - Answers -fundamental, enhancing
Fundamental - Answers -relevance, faithful representation
Relevance - Answers -relevant if makes difference in decision; predictive value,
confirmatory value, materality
Predictive Value - Answers -Predicts trends of business
Confirmatory Value - Answers -Confirming or correcting any past predictions
Materiality - Answers -Determines if the size is big enough to be relevant
Faithful representation - Answers -Completeness, neutrality, free from error
Enhancing qualities - Answers -comparability, verifiability, timeliness, understandability
Comparability - Answers -Comparable information enables comparisons within the
entity and across entities
Verifability - Answers -Assure users that information represents faithfully what it
purports to represent
Timeliness - Answers -Provides information in time for decision-makers in time to be
capable of influencing their decision
Understandability - Answers -Financial information is understandable or
comprehensible to users with reasonable knowledge of business and economic
activities
Economic Entity Assumption - Answers -Economic activity can be identified with
particular unit of accountability
Going Concern Assumption - Answers -Company will have long life
Monetary Unit Assumption - Answers -Unit is understandable, relevant, universally
available
, Periodicity - Answers -Company can separate economic activity into artificial periods of
time
Measurement Principles - Answers -Cost (or Historical Cost Principle, Fair Value
Principle)
Cost (Historical Cost) Principle - Answers -Report assets and liabilities on basis of
acquisition price
Fair Value Principle - Answers -Rational and unbiased estimate of potential market
price
Revenue Recognition - Answers -Revenues are recorded when they are realized and
are earned no matter when cash is received
Matching (Expense Recognition) Principle - Answers -Expenses are recorded in the
same period as the revenues to which they relate
Full Disclosure Principle - Answers -Include all info that would affect reader's
understanding
Cost Constraint - Answers -Excessively expensive to report certain info on financial
statements
Paid-in capital - Answers -Total amount have been invested into corporations to
become shareholders. Ex- common stock, preferred stock, PIC of excess of par
Retained Earnings - Answers -total of amount invested into corporation and kept
Current Assets - Answers -Open for 1 year or less (cash; securities; accounts
receivable, net; prepaid expenses)
Long-term assets - Answers -Open for a year or more (long-term investments; property,
plant and equipment; intangible assets; natural resources)
Intangible assets - Answers -Patents, copyright, trademark, amortization (if useful life is
known)
Comprehensive Income - Answers -Net income and other comprehensive income
Investments by owners - Answers -Increase owner's equity during a period resulting
from transfers to the company from other parties of something of value so they gain
ownership
Distributions to owners - Answers -Decrease equity resulting from company transferring
assets to its owners as owners (dividends)
