Intermediate Accounting

The Securities and Exchange Commission organization primarily represents ____ that participate in the process of establishing GAAP.

Users

The Financial Executives International organization primarily represents ____ that participate in the process of establishing GAAP.

Preparers

The American Institute of Certified Public Accountants primarily represents ____ that participate in the process of establishing GAAP.

Auditors

The Institute of Management Accountants organization primarily represents ____ that participate in the process of establishing GAAP.

Preparers

The Association of Investment Management and Research organization primarily represents ____ that participate in the process of establishing GAAP.

Users

Obligation to transfer cash or other resources as a result of a past transaction

Liability

Dividends paid by a corporation to its shareholders; decreases in equity resulting from transfers to owners

Distribution to owners

Inflow of an asset from providing a good or service

Revenue

The financial position of a company

Assets, Liabilities and Equity

Increase in equity during a period from non-owner transactions; change in equity

Comprehensive Income

Increase in equity from peripheral or incidental transaction; results if an asset is sold for more than its book value

Gain

Sale of an asset used in the operations of a business for less than the asset's book value

Loss

The owners' residual interest in the assets of a company

Equity

An item owned by the company representing probable future benefits

Asset

Revenues plus gains less expenses and losses

Net Income

An owners' contribution of cash to a corporation in exchange for ownership shares of stock

Investment by Owners

Outflow of an asset related to the production of revenue

Expense

Predictive Value

Information is useful in predicting the future

Relevance

Pertinent to the decision at hand

Timeliness

Information is available prior to the decision

Confirmatory Value

Information confirms expectations

Understandability

Users understand the information in the context of the decision being made

Faithful Representation

Agreement between a measure and the phenomenon it purports to represent

Materiality

Concerns the relative size of an item and its effects on decisions

Comparability

Important for making inter-firm comparisions

Neutrality

The absence of bias

Recoginition

The process of admitting information into financial statements

Consistency

Applying the same accounting practices over time

Cost Effectiveness

Requires consideration of the costs and value of the information

Verifiability

Implies consensus among different measures

Matching Priniciple

Record expenses in the period the related revenue is recognized

Periodicity

The life of an enterprise can be divided into artificial time periods

Historical Cost Principle

The original transaction value upon acquisition

Realization Principle

Criteria usually satisfied at point of scale

Going Concern Assumption

The entity will continue indefinitely

Monetary Unit Assumption

A common denominator is the dollar

Economic Entity Assumption

The enterprise is separate from its owners and other entities

Full-Disclosure Principle

All information that could affect decisions should be reported

Jim Marley is the sole owner of Marley's Appliances. Jim borrowed $100,000 to buy a new home to be used as his personal residence. The liability was not recorded in the records of Marley's Appliances.

The Economic Entity Assumption

Apple Inc. distributes an annual report to its shareholders.

The Periodicity Assumption

Hewlett-Packard Corp. depreciates machinery and equipment over their useful lives.

The Matching Principle (also the Going Concern Assumption)

Crosby Company lists land on its balance sheet at $120,000, its original purchase price, even though the land has a current fair value of $200,000.

The Historical Cost (original transaction value) Principle

Honeywell Corp. records revenue when products are delivered to customers, even though the cash has not yet been received.

The Realization (revenue recognition) Principle

Liquidation values are not normally reported in financial statements even though many companies do go out of business.

The Going Concern Assumption

IBM, a multi-billion company, purchased some small tools at a cost of $800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense.

Materiality

The accounting equation can be stated as:

A-L-OE=0

XYZ Corp. receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:

Credit to Capital Stock

Incurring an expense for advertising on account would be recorded by:

Debiting an expense

A sale on account would be recorded by:

Debiting assets

Hughes Aircraft sold a 4-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

Debit to Note Receivable

Davis Hardware uses a perpetual inventory system.. How should Davis record the sale of merchandise, costing $620 and sold for $950 on account?

Accounts Receivable $960
Sales Revenue $960
Cost of Goods Sold $620
Inventory $620

An example of a contra account is:

Accumulated Depreciation

Making insurance payments in advance is an example of:

A prepaid expense transaction

When a magazine company collects cash for selling a subscription, it is an example of:

An unearned revenue transaction

Adjusting entries are primarily needed for:

Accrual accounting