Which principle guideline justifies a company violating an accounting principle because the amounts are not significant?

essential characteristics of accounting 

1. the id, measurement, and communication of financial statements 2. economic entities 3.interested parties.

1.balance sheet 2.statement of cash flows 3.income statement 4.statement of stockholders equity

purpose of financial reporting

provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.

general purpose financial statements provide

the least cost the most useful information possible

objective of financial reporting 

identifies investors and creditors as the primary users for general purpose financial statements.

companies are viewed as separate and distinct from their owners (present shareholders)

investors are interested in assessing

1. the companies ability to generate net cash inflows and 2.managements ability to protect and enhance the capital providers investments.

three organizations involved in development of standards GAAP

FASB relies on two basic premises

1.that FASBA should be responsive to the needs and viewpoints of the entire economic community 2.it should operate in full view of the public throught a due process

1. accounting standard updates 2. financial accounting concepts

EITF emerging issues task force

ids problems as they arise and resolves them of gets fasb involved 

1. id and place on boards agenda 2.research and analysis conducted and preliminary views of pros and cons 3. public hearing on proposed standard 4.boar evaluates research and public response and exposure draft 5 board evaluates responses and changes (if needed) final standard issued

The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the

The financial statement that reports the assets, liabilities, and stockholders' (owner's) equity at a specific date is the

Under the accrual basis of accounting, revenues are reported in the accounting period when the

Service Or Goods Have Been Delivered

Under the accrual basis of accounting, expenses are reported in the accounting period when the

Expense Matches The Revenues Or Is Used Up

Revenues minus expenses equals __________.

Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet and are referred to as __________.

Assets are usually reported on the balance sheet at which amount?

Obligations (amounts owed) are reported on the balance sheet and are referred to as __________.

Liabilities often have the word __________ in their account title.

Unearned Revenues is what type of account?

Accounting entries involve a minimum of how many accounts?

The listing of all of the accounts available for use in a company's accounting system is known as the __________.

Assets minus liabilities equals __________.

Assets = Liabilities + Shareholder Equity.

When cash is received, the account Cash will be

When a company pays a bill, the account Cash will be

What will usually cause an asset account to increase?

What will usually cause the liability account Accounts Payable to increase?

Entries to expenses such as Rent Expense are usually

Entries to revenues accounts such as Service Revenues are usually

The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline?

Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount?

Which principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time?

Which principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements?

Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial?

materiality When an amount is so small/immaterial an accountant may decide to ignore an accounting principle. For example, a large company might purchase a $300 digital camera to be used for the next five years. The matching principle would call for an expense (depreciation) of $60 per year for five years. Most accountants would violate the matching principle and expense the entire $300 in the year it is acquired.

Which principle/guideline is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments?

A very large corporation's financial statements have the dollar amounts rounded to the nearest $1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny?

Accountants might recognize losses but not gains in certain situations. For example, the company might write-down the cost of inventory, but will not write-up the cost of inventory. Which principle/guideline is associated with this action?

Conservatism involves choosing between acceptable alternatives. In other words conservatism is used to break a tie between two acceptable choices of how to account for something. It is also associated with recognizing losses but not gains for certain situations.

Which principle/guideline directs a company to show all the expenses related to its revenues of a specified period even if the expenses were not paid in that period?

When the accountant has to choose between two acceptable alternatives, the accountant should select the alternative that will report less profit, less asset amount, or a greater liability amount. This is based upon which principle/guideline?

Public utilities' balance sheets list the plant assets before the current assets. This is acceptable under which accounting principle/guideline?

Industry practices- Certain industries (usually those that are regulated by the government) have unique reporting requirements that are followed on the financial statements as well as the reports to the government.

A large company purchases a $250 digital camera and expenses it immediately instead of recording it as an asset and depreciating it over its useful life. This practice may be acceptable because of which principle/guideline?

A corporation pays its annual property tax bill of approximately $12,000 in one payment each December 28. During the year, the corporation's monthly income statements report Property Tax Expense of $1,000. This is an example of which accounting principle/guideline?

A company sold merchandise of $8,000 to a customer in December. The company's sales terms require the customer to pay the company in 30 days. The company's income statement reported the sale in December. This is proper under which accounting principle/guideline?

Accrual accounting is based on this principle/guideline.

The creative chief executive of a corporation who is personally responsible for numerous inventions and innovations is not reported as an asset on the corporation's balance sheet. The accounting principle/guideline that prevents the corporation for reporting this person as an asset is

The cost principle requires that assets and other transactions be recorded at cost. The chief executive was not purchased at a cost and therefore is not reported as an asset on the corporation's balance sheet.

An asset with a cost of $120,000 is depreciated over its useful life of 10 years rather than expensing the entire amount when it is purchased. This complies with which principle/guideline?

Near the end of the current year, a company required a customer to pay $200,000 as a deposit for work that is to begin in the following year. At the end of the current year the company reported the $200,000 as a liability on its balance sheet. Which accounting principle/guideline prevented the company from reporting the $200,000 on its income statement for the current year?

A retailer wishes to report its merchandise inventory on its balance sheet at its retail value. This would violate which accounting principle/guideline?

A company borrowed $100,000 in December and will make its only payment for interest when the note comes due six months later. The total interest for the six months will be $3,600. On the December income statement the accountant reported Interest Expense of $600. This action was the result of which accounting principle/guideline?

Financial accounting is focused on the __________ financial statements of a company.

Financial statements report the fair market value of a company.

Large corporations must follow the __________ basis of accounting.

Corporations whose stock is publicly traded must have their financial statements __________by independent certified public accountants.

The U.S. government agency with authority over the financial reporting requirements of publicly traded corporations is the __________.

The non-government organization that researches and develops new accounting standards is the __________.

The acronym for the common rules and standards that companies must follow when preparing its external financial statements is __________.

SEC is the acronym for __________

Securities and Exchange Commission

FASB is the acronym for __________.

Financial Accounting Standards Board

GAAP is the acronym for __________.

generally accepted accounting principles

. __________ entry bookkeeping will result in at least two accounts being involved in every transaction.

Every transaction will have one account being credited and one account being __________

The accounting equation is Assets = __________ + Stockholders' (or Owner's) Equity.

Matching, cost, and full disclosure are examples of the fundamental or basic accounting __________.

The profitability of a company for a specified period of time is reported on the __________statement.

The main components or elements of the income statement are __________, expenses, gains, and losses.

Prepaid insurance is reported as an __________ on a company's balance sheet.

The word " __________" is often in the title of liability accounts

The statement of cash flows explains the changes in cash and cash __________ during the specified time interval.

The first section of the statement of cash flows is the __________ activities.

How Does Accounting Help the
Capital Allocation Process?

n Co. performance measured accurately, fairly & timely – right companies attract investment capital (survival of the fittest). n Unreliable & irrelevant information leads to poor capital allocation (not so fit) which adversely affects the securities market.

What is the Objective of
Financial Reporting?
To provide information:

n That is useful in investment and credit decisions. n That is useful in assessing cash flow prospects. n Useful Information about enterprise’s resources, claims to those resources, and changes in them. n

Of what value is a common set of standards in financial accounting and reporting?

n Common set of standards applied by all businesses and entities provides more reasonably comparable and auditable financial statements.

What is the likely limitations of
“general-purpose financial statements”?

n Not likely to satisfy the specific needs of all interested parties such as creditor, managers, owners, governmental agencies, and financial analysts.  n One size does not fit all!

What essential characteristics does Generally Accepted
Accounting Principals have?

n Accounting Practices, procedures, theories, concepts and methods recognized by large majority of accountants, member of business & financial community. n ARB, Opinions of APB and statements by FASB constitute “authoritative support”.

What is the SEC role in promoting principles and standards?

n SEC has the power to prescribe accounting practices and principals to companies within its jurisdiction. n Sec received audited financial statements from most companies that issue securities to the public or are listed on the stock exchanges.

How is the SEC supportive of accounting principles and standards?

n SEC has moved away from relying on mostly on the AICPA to regulate, develop and enforce accounting principals. n SEC now says FASB’s statements will carry substantial authoritative support and anything contrary to them will lack support.

What was the Committee on Accounting Procedure, and its failings and accomplishments?

n Special committee of AICPA from 1939-1959 issued 51 ARB’s – Accounting Research Bulletins which provided solutions to immediate problems and narrowed the range of alternative practices. n Failed to provided a well-defined & well-structured body of accounting theory.

10.  Accounting Research Bulletins

n Pronouncements on accounting practice issued by Committee on Accounting practice from 1939-1954. n Accepted accounting practice unless superseded in part or in whole by an opinion of the APB or a FASB standard.

For what purposes did the AICPA in 1959 create the
Accounting Principals Board?

n Intended to advance the written expression of accounting principals, to determine appropriate practices, and to narrow the differences and inconsistencies in practice. n Mission to develop an overall conceptual framework & substantive research on issues before pronouncements were issued.

Accounting Principal Board Opinions

n Issued by Accounting Principals Board from 1959-1973. n Accepted accounting practice unless superseded in part or in whole by an FASB standard .

Statements of the
  Financial Standards Board

n Represent the accounting professions' authoritative pronouncements on financial accounting and reporting practice.

Does FASB statements carry greater weight than APB opinions?

n Yes because FASB has: n 1) F ull-time compensated members. n 2) Smaller membership board. n 3) Greater autonomy & independence. n 4) Broader representation.

Distinguish between FASB Statements of “Financial Accounting Standards” and “Accounting Concepts”

n Concepts do not establish GAAP rather set fundamental objectives and concepts for use as a basis for developing future standards.

What is the Role of the
  Emerging Issue Task Force
in establishing GAAP?

n Consensus conclusions on certain financial reporting issues(new and unusual financial transactions)that must  ratified by FASB. Preferred accounting per SEC unless subsequently overturned by the FASB. 

What is Rule 203 of the
Code of Professional Ethics?

n Prohibits a member of AICPA from expressing an opinion that financial statements conform with GAPP if they contain a material departure from GAAP.

What is the difference between the Codification and the
Codification   Research System?

n Codification:  Provides a library of all the authoritative GAAP literature arranged by particular topic. n Research System:  Online real time data base that provides easy access to the Codification.

Name of Key Provisions of the Sarbanes Oxley Act

n PCAOB –oversight & enforcement authority – establishes auditing, quality control, & independence standards and rules. n CEOs and CFOs personally certify accuracy of statements. n Implemented stronger independence rules for Auditors. n Audit committee members independent & possess financial expertise. n Requires a Code of Ethics for senior financial officers. n

Which principle guideline justifies a company violating an accounting principle because the amounts are Immateria?

The full disclosure principle requires businesses to disclose information that is relevant to the decisions of investors and creditors. When an amount is so small/immaterial an accountant may decide to ignore an accounting principle.

Which principle guideline allows a company to violate an accounting principle because the amounts are insignificant?

Materiality. Because of this basic accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to decide whether an amount is insignificant or immaterial.

What violates the consistency principle?

Changing Accounting Methods Adapting your accounting methods to keep pace with growing demand for your company's product or service would be a valid reason. Switching between accounting methods to minimize taxable income would be considered an unwarranted change, and a violation of the consistency principle.

Which principle guideline requires the company's financial statement to have footnotes containing information that is important to users of the financial statements?

Full disclosure principle. The full disclosure principle requires that financial statements include disclosure of such information. Footnotes supplement financial statements to convey this information and to describe the policies the company uses to record and report business transactions.