Essential Characteristics of Accounting (1) The identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties.
Financial Accounting The process that culminates in the preparation of financial reports on the enterprise for use by both ...
ACG 3131 Ch. 1 Test Questions and
Correct Answers
Essential Characteristics of Accounting ✅(1) The identification, measurement, and
communication of financial information about (2) economic entities to (3) interested
parties.
Financial Accounting ✅The process that culminates in the preparation of financial
reports on the enterprise for use by both internal and external parties.
Most Frequently Provided Financial Statements ✅(1) Balance Sheet
(2) Income Statement
(3) Statement of Cash Flows
(4) Statement of Owners' or Stockholders' Equity
Financial Reporting ✅Reporting of financial information other than in formal financial
statements.
Capital Allocation ✅Accountants must measure performance accurately and fairly on a
timely basis, so that the right managers and companies are able to attract investment
capital.
Capital Allocation Process ✅Financial reporting is done to provide info., users use info.
to plan allocation, allocation (how and at what cost).
Allows for a healthy economy.
Objective of Financial Reporting ✅To provide financial information about the reporting
entity that is useful to present and potential equity investors, lenders, and other creditors
in decisions about providing resources to the entity.
General-Purpose Financial Statements ✅Provide financial reporting information to a
wide variety of users at the least cost the most useful information possible.
Equity Investors and Creditors ✅Investors and creditors are the primary users of
general-purpose financial statements because they need it to asses an entity's ability to
generate cash inflow and to understand management's ability to protect and enhance
the assets of the company.
Entity Perspective ✅In general-purpose reporting, companies are viewed as separate
and distinct from their owners.
, Decision-Usefulness ✅Financial reporting should be useful by helping them assess (1)
the company's ability to generate net cash inflows and (2) management's ability to
protect and enhance the capital providers' investments.
Accrual-Basis Accounting ✅A company records events that change its financial
statements in the periods in which the events occur.
Generally Accepted Accounting Principles (GAAP) ✅The common set of accounting
standards and procedures, for which either an authoritative accounting rule-making
body has established a principle of reporting in a given area, or over time, a given
practice as appropriate because of its universal application.
Great Depression ✅1929
Securities and Exchange Commission (SEC) ✅Established by the federal government
after the Great Depression to help develop and standardize financial information
presented to stockholders. Exercises oversight over 12,000 companies.
SEC Public/Private Partnership ✅The SEC encouraged the creation of a private-
setting body (AICPA, FASB). The SEC requires registrants to adhere to GAAP.
SEC Oversight ✅Generally, the SEC relies on the FASB to develop accounting
standards. The SEC will reject FASB proposed standards or prod FASB for a certain
change. In other situations, the SEC communicates problems to the FASB, responds to
FASB exposure drafts, and provides the FASB with counsel and advice.
American Institute of Certified Public Accountants (AICPA) ✅The national professional
organization of practicing Certified Public Accountants (CPAs), has been an important
contributor to the development of GAAP.
Committee on Accounting Procedure (CAP) ✅At the urging of the SEC, the AICPA
created CAP in 1939. Composed of CPAs, issued 51 Accounting Research Bulletins
from 1939 to 1959. The problem-by-problem approach failed, led to the Accounting
Principles Board.
Accounting Research Bulletins ✅Issued by CAP to deal with Accounting Problems as
they arose.
Accounting Principles Board (APB) ✅The major purposes of the APB were to (1)
advance the written expression of accounting principles, (2) determine appropriate
practices, and (3) narrow the areas of difference and inconsistency in practice. 31 APB
Opinions were issued by its dissolution in 1973. Wheat Committee was created and
analyzed the APB, which then was replaced with the FASB in 1973.
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