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TRUE OR FALSE:

___ The most common point of revenue recognition is when thegoods or services are transferred or provided to the seller. (Ondelivery).

___ A change in the inventory accounting method would violatethe principle of consistency.

___ When transactions occur, we must decide when to recognizethe transactions in the financial statements and how to measurethem. The principles of recognition and measurement are:Objectivity, Recognition of Income, Principle of Congruence(Matching) and Consistency.

___ Inflation changes the purchasing power of monetary units, ifinflation is material, the stable dollar hypothesis is valid.

___ The purpose of accounting theory is to provide a coherentand general framework for assessing accounting practices so thatthey can guide the development of new practices and procedures.

___ A cash deposit at a bank or similar financial institution isa financial liability because it represents, for the depositor, acontractual right to obtain cash from the entity, to write a checkagainst the balance of the same in favor of a creditor in paymentof an asset financial.

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Reid Wolff
Reid WolffLv2
29 Sep 2019

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Chapter 1 Financial Accounting and Accounting Standards

Other means of financial reporting that are not financialstatements include the president’s letter or supplementaryschedules in the corporate annual report, prospectuses, reportsfiled with government agencies, news releases, managementforecasts, and social or environmental impact statements.

a) The objectives of Financial Reporting The objective:

The objective is to prepare financial information that is usefulto present and potential equity investors, lenders and otherstakeholders in taking decision

b) General-purpose financialstatements_______________________________________________________________________________________________________________________________________________________________.

c) Entity perspective____________________________________________________________________

d)Provide decision-useful_________________________________________________________________________________________________________________________________________________.

e) The accounting profession has developed a set of standardsand procedures called _________________________________________________________

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.

 ___________________________________________________ thatnarrowed the wide range of alternative accounting practices then inexistence.

In _______. the __________________________________ was formed tomeet the demand for more structured accounting standards. The APBissued pronouncements on accounting principles until _______. thepronouncements where known as _________________, when it wasreplaced by the __________________________________ .WheatCommittee’s recommendations resulted in creation of FASB. The FASBrepresents the current rule-making body within the accountingprofession. The mission of the FASB is to establish and improvestandards of financial accounting and reporting for the guidanceand education of the public, which includes issuers, auditors, andusers of financial information.

The FASB differs from the 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.

The FASB issues two major types of pronouncements:

a. When the FASB 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 anattempt to move away from the problem-by-problem approach tostandard setting that has been characteristic of the accountingprofession. The Concept Statements are intended to form a cohesiveset of interrelated concepts, a conceptual framework that willserve as tools for solving existing and emerging problems in aconsistent manner. Unlike FASB statements, the Concept Statementsdo not establish 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

 __________________________________

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

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

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

 __________________________________

The FASB board members were CPAs. GAAP The FASB developed theFinancial Accounting Standards Board Accounting StandardsCodification _____________________________ to provide in one placeall the authoritative literature related to a particulartopic._________________________________________________________________________________________________________________

Major sources of GAAP:  _______________________________________ _______________________________________ _______________________________________

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. ____________________________________________________________________________________________________________________________________________

Unit 6 GAAP Application-Conceptual Framework of Accounting TheConceptual Framework allows for the systematic adaptation ofaccounting standards to a changing business environment. The FASBuses the conceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depre-ciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole propri-etor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability Type your answers ina Word Document, and submit to the Drop Box.
GAAP Application-Conceptual Framework of Accounting the ConceptualFramework allows for the systematic adaptation of accountingstandards to a changing business environment. The FASB uses theconceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depreciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole proprietor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability

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