ACC1000 Lecture Notes - Lecture 1: Cost Accounting, Satisficing, Financial Accounting

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26 Jul 2018

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The process of identifying, measuring and communicating economic information about an entity to permit informed judgements and decisions by the users of the information. We only record the economic information in accounting. Must be useful economic information about an entity. For the users of the financial statements so they can make informed judgements and decisions. The more traditional role of providing accountability reports of transactions for a given period. The more recent role of assisting users with making informed choices about the allocation of scarce resources. Internal users of accounting information are those who work within the business. They have access to all (or most) of the business records external users of accounting information are those outside the business, but may still be affected by the operations of the business. Customers assess ability of the business to continue in business and supply the needs of the customers.

Related Questions

Chapter 1 Financial Accounting and Accounting Standards

The essential characteristics of accounting are (1) theidentification, measurement, and communication of financialinformation about (2) economic entities to (3) interested partiesFinancial accounting is_________________________________________________________________________________________________________________________________________________.For example accounting information is used by financial accountingto decide whether to invest in the company, evaluate borrowingcapacity to determine the extent of a loan to grant or buy, sell,hold equity and debt instruments.

Managerial accounting is_________________________________________________________________________________________________________________________________________________.

The financial statements* most frequently provided are (1)_______________________ (2) _______________________ (3)_______________________ (4) _______________________ *Also part ofthe financial statements are the notes of the financial statements.Other means of financial reporting that are not financialstatements include the presidentâs letter or supplementaryschedules in the corporate annual report, prospectuses, reportsfiled with government agencies, news releases, managementforecasts, and social or environmental impactstatements.

a) The objectives of Financial Reporting The objective;__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

General-purpose financialstatements_______________________________________________________________________________________________________________________________________________________________.

Entity perspective____________________________________________________________________

Provide decision-useful_________________________________________________________________________________________________________________________________________________.

The accounting profession has developed a set of standards andprocedures called _________________________________________________________

Which of the following represents a form of communicationthrough financial reporting but not through financialstatements?

A. Notes to financial statements. B. Balance sheet. C.President's letter. D. Income statement.

The objective of financial reporting places most emphasison:

A. providing specific guidance related to specific needs. B.providing information to individuals who are experts in the field.C. reporting on stewardship. D. reporting to capital providers.

General-purpose financial statements are prepared primarily for:A. external users. B. auditors. C. internal users. D. governmentregulators.

LO 1.2 Identify the major policy-setting bodies and their rolein the standard-setting process.

Three organizations: Securities and Exchange Commission (SEC):______________________________

American Institute of Certified Public Accountants (AICPA):_______________________________________________________________

Financial Accounting Standards Board (FASB):____________________________

The federal government established the SEC to help develop andstandardize financial information presented to stockholders. Mostcompanies that issue securities to the public or are listed on astock exchange are required to file audited financial statementswith the SEC._____________________________________________________________________________________________________________________________________.

Under the direction of the SEC the__________________________________ was created by the AICPA in_______. It was the first private sector organization that had thetask of setting accounting standards in the United States. ï·___________________________________________________ that narrowedthe wide range of alternative accounting practices then inexistence. In _______. the __________________________________ wasformed to meet the demand for more structured accounting standards.The APB issued pronouncements on accounting principles until_______. the pronouncements where known as _________________, whenit was replaced by the __________________________________ .WheatCommitteeâs recommendations resulted in creation of FASB.

The FASB represents the current rule-making body within theaccounting profession. The mission of the FASB is to establish andimprove standards of financial accounting and reporting for theguidance and education of the public, which includes issuers,auditors, and users of financial information. The FASB differs fromthe predecessor APB in the following ways: a.__________________________________ b.__________________________________ c.__________________________________ d.__________________________________ e.__________________________________

In 1984, the FASB created the __________________________________The purpose of the Task Force is to reach a consensus on how toaccount for new and unusual financial transactions that have thepotential for creating differing financial reporting practices.

Which organization was responsible for issuing AccountingResearch Bulletins? A. The Accounting Principles Board. B. The SEC.C. The Committee on Accounting Procedure. D. The FASB.

The Financial Accounting Standards Board (FASB) was proposed bythe A. Study Group on the Objectives of Financial Statements. B.American Institute of Certified Public Accountants. C. Study Groupon establishment of Accounting Principles (Wheat Committee). D.Accounting Principles Board.

The major distinction between the Financial Accounting StandardsBoard (FASB) and its predecessor, the Accounting Principles Board(APB), is A. a majority of the members of the FASB are CPAs who aredrawn from public practice. B. all members of the FASB possessextensive experience in financial reporting.C. all members of theFASB are fully remunerated, serve full time, and are independent ofany companies or institutions. D. the FASB issues exposure draftsof proposed standards.

The FASB issues two major types of pronouncements: a. When theFASB issues a new standard it is refers as_________________________________to communicate changes to the FASBCodification. They are considered GAAP and must be followed inpractice. o How the FASB has changed US GAAP, including eachspecific amendment to the FASB Codification o Why the FASB decidedto change US GAAP and background information related to the changeo When the changes will be effective and the transition method. b.__________________________________ The SFACs represent an attemptto move away from the problem-by-problem approach to standardsetting that has been characteristic of the accounting profession.The Concept Statements are intended to form a cohesive set ofinterrelated concepts, a conceptual framework that will serve astools for solving existing and emerging problems in a consistentmanner. Unlike FASB statements, the Concept Statements do notestablish GAAP.

Prior to 2009 the FASB issued several type of pronouncementswhich had different levels of authority. The type of pronouncementsare listed in descending order of relative weight of authority theyhad within GAAP

ï· __________________________________

ï· ______________ : these pronouncements refined GAAP byclarifying conflicting or unclear issues relating to previouslyissued standards

ï· ______________ FASB staff issued pronouncements to providemore timely and consistent application guidance and to make narrowand limited revision of standards.

ï· ______________: FASB staff issue these pronouncements toclarify and explain, or elaborate on accounting and reportingproblems. ï· __________________________________

Which of the following is not a publication of the FASB? A.Statements of Financial Accounting Concepts B. Accounting ResearchBulletins C. Interpretations D. Technical Bulletins

_________________________________________________________________________The FASB has established the following procedures for developingaccounting standards. These procedures are used for major projects.Not all of the steps may be necessary for projects focused onnarrower application and implementation issues. Many other stepsare followed during the course of the project that are notspecifically required by the Boardâs Rules of Procedures.

Why was it believed that accounting standards that were issuedby the Financial Accounting Standards Board would carry moreweight? A. The FASB board had a smaller membership. B. The FASBboard members were well-paid. C. The FASB follows due process. D.The FASB board members were CPAs.

GAAP

The FASB developed the Financial Accounting Standards BoardAccounting Standards Codification _____________________________ toprovide in one place all the authoritative literature related to aparticulartopic._________________________________________________________________________________________________________________

Major sources of GAAP:

ï· _______________________________________

Most countries have recognized the need for more globalstandards. _____________________________________________ and U.S.rule-making bodies are working together to reconcile U.S. GAAP withthe IASB _________________________________________

Major challenges in the financial reporting environment.

ï·______________________________________________________________________

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Chapter 2 Conceptual Framework for Financial Reporting LO 2.1Describe the usefulness of a conceptual framework.

A _____________________ in accounting is important becauserule-making should be built on and relate to an established body ofconcepts.

The benefits of a soundly developed conceptual framework are asfollows: a) ______________________________________________________b) ______________________________________________________

Which of the following is not true concerning a conceptualframework in accounting? A. It should be a basis forstandard-setting. B. It should allow practical problems to besolved more quickly by reference to it. C. It should be based onfundamental truths that are derived from the laws of nature. D. Allof these answer choices are true.

LO 2.2 Understand the objective of financial reporting. Toprovide financial information about the reporting entity that is_______________ to present and potential equity_________________________________in making decisions aboutproviding resources to the entity.

In other words the objective is_________________________________________________________________________________________________________________________________________.

LO 2.3 Identify the qualitative characteristics of accountinginformation. The qualitative characteristics of accountinginformation distinguish better and more useful information frominferior and less useful information.

a.Fundamental qualities of useful accounting information.

Relevance._______________________________________________________________________________________________________________________________________________________________

(a)Predictive value.:_____________________________________________________________________________________.

(b)Confirmatory value:_________________________________________________________________________________.

(c)Materiality.:_________________________________________________________________________________.

FaithfulRepresentation.___________________________________________________________________________________________________________________________________________________

(a)Completeness_________________________________________________________

(b)Neutrality_______________________________________________________

(c)Free from error___________________________________________________

b.Enhancing Qualities Enhancing qualities complement thefundamental qualities and include:

Comparability__________________________________________________________________.

Consistency_____________________________________________________________________________________________________________________ Verifiability__________________________________________________________________.

Timeliness__________________________________________________________________.Understandabili_____________________________________________________________________________________________________________________

Select the qualitative characteristics for the followingstatements.

(a) Quality of information that assures users that informationrepresents the economic phenomena that it purports torepresent.

(b) Information about an economic phenomenon that corrects pastor present expectations based on previous evaluations.

(d) Includes all the information that is necessary for afaithful representation of the economic phenomena that it purportsto represent.

(e) Quality of information that allows users to comprehend itsmeaning.

SFAC No. 8 identifies the qualitative characteristics that makeaccounting information useful. Presented below are a number ofquestions related to these qualitative characteristics andunderlying constraint.

(a) What is the quality of information that enables users toconfirm or correct prior expectations?

(b) Identify the pervasive constraint developed in theconceptual framework.

(c) The chairman of the SEC at one time noted, âIf it becomesaccepted or expected that accounting principles are determined ormodified in order to secure purposes other than economicmeasurement, we assume a grave risk that confidence in thecredibility of our financial information system will beundermined.â Which qualitative characteristic of accountinginformation should ensure that such a situation will not occur? (Donot use faithful representation.)

(d) Muruyama Corp. switches from FIFO to averagecost to FIFOover a 2-year period. Which qualitative characteristic ofaccounting information is not followed?

(e) Assume that the profession permits the savings and loanindustry to defer losses on investments it sells because immediaterecognition of the loss may have adverse economic consequences onthe industry. Which qualitative characteristic of accountinginformation is not followed? (Do not use relevance or faithfulrepresentation.)

(f) What are the two fundamental qualities that make accountinginformation useful for decisionmaking?

(g) Watteau Inc. does not issue its first-quarter report untilafter the second quarterâs results are reported. Which qualitativecharacteristic of accounting is not followed? (Do not userelevance.)

(h) Predictive value is an ingredient of which of the twofundamental qualities that make accounting information useful fordecision-making purposes?

(i) Duggan, Inc. is the only company in its industry todepreciate its plant assets on a straight-line basis. Whichqualitative characteristic of accounting information may not befollowed?

(j) Roddick Company has attempted to determine the replacementcost of its inventory. Three different appraisers arrive atsubstantially different amounts for this value. The president,nevertheless, decides to report the middle value for externalreporting purposes. Which qualitative characteristic of informationis lacking in these data? (Do not use relevance or faithfulrepresentation.)

If the LIFO inventory method was used last period, it should beused for the current and following periods because of A.consistency. B. verifiability. C. materiality. D. timeliness.

According to the FASB's conceptual framework, what does theconcept of faithful representation include? A. Predictive value B.Materiality C. Verifiability D. Neutrality

Which of the following is not a basic assumption underlying thefinancial accounting structure? A. Going concern assumption B.Economic entity assumption C. Historical cost assumption D.Periodicity assumption

Under current GAAP, inflation is ignored in accounting due tothe A. periodicity assumption. B. economic entity assumption. C.going concern assumption. D. monetary unit assumption.

Valuing assets at liquidation values rather than cost isinconsistent with the A. historical cost principle. B. materialityconstraint. C. periodicity assumption. D. expense recognitionprinciple.

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Question 1

Identify the item below that is not one of the four different types of data processing activities.

		deleting
		reading
		creating
		using

Question 2

All of the following are advantages of an ERP system except

		ERPs permit manufacturing plants to receive new orders in real time.
		in an ERP, data input is captured or keyed once.
		it takes considerable experience and training to use an ERP system effectively.
		ERPs permit management to gain greater visibility into every area of the enterprise.

Question 3

Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?

		relevant
		reliable
		complete
		timely
		understandable
		verifiable
		accessible

Question 4

An ERP system might facilitate the purchase of direct materials by all of the following except

		preparing a purchase order when inventory falls to reorder point.
		routing a purchase order to a purchasing agent for approval.
		communicating a purchase order to a supplier.
		selecting the best supplier by comparing bids.

Question 5

Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)

		entity.
		attribute.
		field.
		record.

Question 6

Which of the following is not considered a source document?

		A copy of the company's shipping document.
		A copy of the company's ledger.
		A copy of the company's sales journal.
		A copy of the company's financial statements.

Question 7

In an ERP system, the module used to record data about transactions in the disbursement cycle is called

		financial.
		order to cash.
		customer relationship management.
		purchase to pay.

Question 8

Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in

		goal conflict.
		information overload.
		decreased value of information.
		goal congruence.

Question 9

________ are examples of activities that constitute inbound logistics.

		Activities that transform inputs into final products or services
		Activities that provide post-sale support to customers
		Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells
		Activities that help customers to buy the organization's products or services

Question 10

In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?

		the revenue cycle
		the expenditure cycle
		the human resources / payroll cycle
		the financing cycle

Question 11

The collection of customer payment is part of which transaction cycle?

		the human resources cycle
		the production cycle
		the revenue cycle
		the expenditure cycle

Question 12

Which of the following is an example of source data automation?

		POS (point-of-sale) scanners in retail stores
		a bill of lading
		a subsidiary ledger
		a utility bill

Question 13

All of the following are guidelines for developing a good coding system except

		be as sophisticated as possible to promote usage.
		be consistent with its intended use.
		be flexible to allow for growth.
		be consistent with the company's organization structure.

Question 14

What is a key decision that needs to be made with regards to borrowing money from lenders?

		the location
		pro forma income statement
		how much capital to acquire
		job descriptions

Question 15

Identify the false statement below.

		A service company does not have an inventory system.
		Retail stores do not have a production cycle.
		Financial institutions have installment-loan cycles.
		Every organization should implement every transaction cycle module.

Question 16

The chart of accounts of a fast-food restaurant would probably include

		a list of customers.
		a list of financial statement accounts.
		a list of vendors.
		a list of employees.

Question 17

Which statement below regarding the AIS is false?

		Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.
		The AIS must be able to provide managers with detailed and operational information about the organization's performance.
		Both traditional financial measures and operational data are required for proper and complete evaluation of performance.
		The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.

Question 18

In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?

		well-designed paper forms
		turnaround documents
		source data automation
		sequentially numbered bills

Question 19

Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of

		verifiability.
		truthful.
		relevance.
		reliability.

Question 20

		entity.
		attribute.
		field.
		record.

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ACC1000 Lecture Notes - Lecture 1: Cost Accounting, Satisficing, Financial Accounting

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