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116 Cards in this Set

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The financial statements most frequently provided include all of the following except the:
A. balance sheet.
B. statement of cash flows.
C. statement of retained earnings.
D. statement of stockholders' equity.
C. statement of retained earnings.
An effective process of capital allocation is critical to a healthy economy, which:
A. promotes productivity.
B. encourages innovation.
C. provides an efficient and liquid market for buying and selling securities.
D. All of the options are correct.
D. All of the options are correct
Challenges facing financial accounting include all of the following except:
A. forward-looking information.
B. financial measurements.
C. soft assets.
D. timeliness.
B. financial measurements
All of the following are objectives of financial reporting except to provide information:
A. about enterprise resources, claims to those resources, and changes in them.
B. that is useful in investment and credit decisions.
C. about the management and major shareholders of an enterprise.
D. that is useful in assessing cash flow prospects
C. about the management and major shareholders of an enterprise

Objectives of financial reporting include all of the options except providing information about the management and major shareholders
The term GAAP means:
A. generally accepted accounting practices.
B. generally accepted accounting principles.
C. generally accepted auditing practices.
D. generally accepted accounting purposes
generally accepted accounting principles
Which one of the following organizations has not been instrumental in the development of financial accounting standards?
A. AICPA.
B. FASB.
C. IMA.
D. SEC
C. IMA
Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders?
A. AICPA.
B. FASB.
C. GASB.
D. SEC
D. SEC
The first step taken in the establishment of a typical FASB statement is:
A. the board conducts research and analysis and a discussion memorandum is issued.
B. a public hearing on the proposed standard is held.
C. the board evaluates the research and public response and issues an exposure draft.
D. topics are identified and placed on the board's agenda
topics are identified and placed on the board's agenda
The most authoritative source of GAAP among the following is FASB:
A. Emerging Issues Task Force Statements.
B. Implementation Guides.
C. Interpretations.
D. Technical Bulletins
C. Interpretations
International Financial Reporting Standards (IFRS) are issued by the:
A. FASB.
B. IASB.
C. IASF.
D. SEC.
B. IASB
All of the following are true regarding iGAAP except:
A. iGAAP includes standards referred to as International Auditing Standards (IAS).
B. iGAAP tends to be simpler in its accounting than U.S. GAAP.
C. iGAAP is more principle-based than U.S. GAAP.
D. iGAAP standards are developed by the IASB
A. iGAAP includes standards referred to as International Auditing Standards (IAS).
All of the following statements about the conceptual framework are correct except it:
A. is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
B. prescribes the nature, function, and limits of financial accounting and financial statements.
C. increases financial statement users' understanding of and confidence in financial reporting.
D. All of these options are correct
D. All of these options are correct
The first level of the conceptual framework is the:
A. elements of financial statements.
B. objectives of financial reporting.
C. qualitative characteristics of accounting information.
D. recognition and measurement concepts.
B. objectives of financial reporting
The objectives of financial reporting include all of the following except to provide information that is:
A. useful to those making investment and credit decisions.
B. helpful to present and potential investors, creditors, and other users.
C. used in establishing and applying accounting standards.
D. about economic resources and claims to those resources
C. used in establishing and applying accounting standards
All of the following are ingredients of relevance except:
A. feedback value.
B. predictive value.
C. timeliness.
D. verifiability
D. verifiability
Secondary qualities of accounting information are:
A. comparability and consistency.
B. cost/benefits and materiality.
C. relevance and reliability.
D. representational faithfulness and neutrality
A. comparability and consistency
Which of the following statements about comprehensive income is incorrect?
A. It is more inclusive than the traditional notion of net income.
B. Unrealized holding gains on available-for-sale securities are included in comprehensive income.
C. It includes all changes in equity during a period except net income.
D. Changes in equity of an entity during a period from transactions and other events from nonowner sources are included in comprehensive income
C. It includes all changes in equity during a period except net income
Increases in equity from peripheral or incidental transactions of an entity are:
A. expenses.
B. gains.
C. investments by owners.
D. revenues
B. gains.
Depreciation and amortization policies are justifiable and appropriate because of the:
A. economic entity assumption.
B. going concern assumption.
C. monetary unit assumption.
D. periodicity assumption
. going concern assumption
The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods is the:
A. economic entity assumption.
B. going concern assumption.
C. monetary unit assumption.
D. periodicity assumption.
D. periodicity assumption
Generally, revenue should be recognized:
A. during production.
B. at the end of production.
C. at the time of sale.
D. at the time cash is received.
C. at the time of sale
Generally, expenses are recognized when the:
A. wages are paid.
B. work is performed.
C. product is produced.
D. work or product actually makes its contribution to revenue
D. work or product actually makes its contribution to revenue.
Providing information that is of sufficient importance to influence the judgment:
and decisions of an informed user is required by the
A. full disclosure principle.
B. historical cost principle.
C. matching principle.
D. revenue recognition principle.
A. full disclosure principle
In providing information with the qualitative characteristics that make it useful, two overriding constraints that must be considered are:
A. industry practices and conservatism.
B. materiality and conservatism.
C. cost-benefit relationship and industry practices.
D. cost-benefit relationship and materiality
D. cost-benefit relationship and materiality.
Companies and their auditors have adopted a general rule of thumb that anything under 5% of _______ is considered not material.
A. assets.
B. liabilities.
C. net income.
D. sales.
C. net income.
Which constraint states, when in doubt, choose the solution that will be least likely to overstate assets and net income?
A. Materiality.
B. Industry practices.
C. Cost-benefit relationship.
D. Conservatism.
D. Conservatism
All of the following statements are false regarding the IASB and FASB convergence efforts except:
A. the FASB framework extensively discusses and assumes that reporting entities are going concerns.
B. the IASB and FASB have not been able to agree on qualitative characteristics, so that part of the project was scrapped.
C. the FASB framework does not identify accrual accounting as an assumption.
D. there is a need to change many aspects of existing frameworks
C. the FASB framework does not identify accrual accounting as an assumption
The financial statement that shows the financial condition of the enterprise at the end of a period is the:
A. income statement.
B. statement of retained earnings.
C. balance sheet.
D. statement of cash flows
C. balance sheet.
All of the following accounts are increased on the credit side except:
A. Common Stock.
B. Dividends.
C. Retained Earnings.
D. Revenues.
B. Dividends.

The dividends account is increased on the debit side.
Which of the following are reported in the stockholders' equity section of the balance sheet?
A. Revenues and expenses.
B. Dividends and retained earnings.
C. Common stock and dividends.
D. Common stock and retained earnings
D. Common stock and retained earnings


Common stock and retained earnings are reported in the stockholders' equity section of the balance sheet
An optional step in the accounting cycle is the preparation of:
A. the trial balance.
B. adjusting entries.
C. closing entries.
D. the worksheet
D. the worksheet
All of the following are external events except:
A. a transaction with another entity.
B. consuming raw materials in production processes.
C. a change in the price of a good that an entity buys or sells.
D. an improvement in technology by a competitor
B. consuming raw materials in production processes
Posting is the process of transferring items entered in a general journal to the:
A. worksheet.
B. trial balance.
C. general ledger.
D. financial statements
C. general ledger
Which of the following statements about a trial balance is incorrect?
A. Its primary purpose is to prove the mathematical equality of debits and credits after posting.
B. It uncovers errors in journalizing and posting.
C. It is useful in the preparation of financial statements.
D. It proves that all transactions have been recorded
D. It proves that all transactions have been recorded
An adjusting entry would never include a:
A. debit to an expense account and a credit to an asset account.
B. debit to an expense account and a credit to a liability account.
C. debit to a liability account and a credit to a revenue account.
D. debit to an asset account and a credit to a liability account
D. debit to an asset account and a credit to a liability account
The adjusting entry to record revenue that has been earned, but was previously recorded as unearned results in a debit to:
A. an asset account and a credit to a revenue account.
B. a liability account and a credit to a revenue account.
C. an expense account and a credit to a revenue account.
D. a revenue account and a credit to an asset account
B. a liability account and a credit to a revenue account
If the adjusting entry for an accrued expense is not made:
A. assets will be overstated.
B. expenses will be overstated.
C. liabilities will be understated.
D. owner's equity will be understated
C. liabilities will be understated
In the closing process all of the revenue and expense account balances are transferred to the:
A. Capital account.
B. Income Summary account.
C. Retained Earnings account.
D. Dividends account
B. Income Summary account.
All of the following accounts are used with a perpetual inventory system except:
A. Cost of Goods Sold.
B. Inventory.
C. Purchases.
D. Sales Revenue.
C. Purchases
The post-closing trial balance consists only of:
A. asset and liability accounts.
B. nominal accounts.
C. revenue and expense accounts.
D. real accounts
D. real accounts
A work sheet:
A. replaces financial statements.
B. is a required step in the accounting cycle.
C. causes the financial statements to be prepared on a delayed basis.
D. is an informal device for accumulating and sorting information needed for the financial statements
D. is an informal device for accumulating and sorting information needed for the financial statements.
Which one of the following appears in both the income statement and balance sheet columns of a work sheet?
A. Merchandise Inventory.
B. Net income.
C. Retained Earnings.
D. Sales.
B. Net income
All of the following are points made about accounting information systems and their relationship to the convergence efforts by the IASB and the FASB except:
A. the cost of good information and better internal controls is a general held reason for why U.S. security markets more competitive.
B. while there is a need to work toward international convergence of accounting standards, there has also been a movement to improve international auditing standards.
C. commentators argue that SOX is the cause of the relative decline of U.S. IPOs.
D. commentators argue that the growth in non-U.S. markets is a natural consequence of general globalization of capital flows
A. the cost of good information and better internal controls is a general held reason for why U.S. security markets more competitive.
Corporations whose securities are listed on a U.S. stock exchange are required to file audited financial statements with the Financial Accounting Standards Board.
A. True
B. False
B. False
Accounting Research Bulletins (ARBs) were issued by the Accounting Principles Board (APB).
A. True
B. False
B. False
APB Opinions were issued by the Accounting Practices Board.
A. True
B. False
B. False
Financial Accounting Concepts are a major type of pronouncement issued by the FASB.
A. True
B. False
A. True
The passage of a new FASB Standards Statement requires the support of three of five Board members.
A. True
B. False
A. True
Financial reports generally focus on soft assets such as Apple's brand image or Wal-Mart's supply chain management system.
A. True
B. False
B. False
The AICPA's Practice Bulletins provide the Accounting Standards Executive Committee's views on narrow financial reporting issues that have not been addressed by the FASB.
A. True
B. False
A. True
Section 404 of the Sarbanes Oxley-Act requires public companies to attest to the effectiveness of their internal controls.
A. True
B. False
A. True
Foreign companies that list on U.S. exchanges are required to use U.S. GAAP.
A. True
B. False
B. False
All listed companies in the European Union use iGAAP.
A. True
B. False
A. True
iGAAP is more “rule-based” in its approach to standards than U.S. GAAP.
A. True
B. False
B. False
Which of the following generally provides a better indication of an enterprise's present and continuing ability to generate favorable cash flows?
A. Cash basis accounting.
B. Accrual basis accounting.
C. Managerial basis accounting.
D. Financial basis accounting
B. Accrual basis accounting
Which group selects members of the FASB?
A. FAF.
B. SEC.
C. AICPA.
D. FASAC
A. FAF
Which of the following is not a significant difference between the FASB and its predecessor, the APB?
A. Greater autonomy.
B. Larger membership.
C. Increased independence.
D. Broader representation
B. Larger membership
Which of the following organizations is not part of the current standard-setting structure?
A. Financial Accounting Foundation.
B. Financial Accounting Standards Board.
C. Financial Accounting Council.
D. Financial Accounting Standards Advisory Council.
C. Financial Accounting Council
Which of the following documents is not issued during the due process system that results in a new pronouncement?
A. Staff positions.
B. FASB Standard.
C. Exposure draft.
D. Discussion memorandum
A. Staff positions
The Financial Accounting Standards Board is composed of how many board members?
A. 7.
B. 10.
C. 5.
D. 18
C. 5
The organization whose purpose is to reach consensus on how to account for new and unusual financial transactions that have potential for creating differing financial reporting practices is the:
A. FASB.
B. FASAC.
C. EITF.
D. AICPA.
C. EITF
All of the following are true regarding the FASB Codification except:
A. the goal of the Codification was to provide one place where all authoritative literature about financial statement preparation could be found.
B. the purpose of the Codification is to create new GAAP.
C. the Codification was created to simplify user access.
D. the Codification changes the way GAAP is documented, presented, and updated.
B. the purpose of the Codification is to create new GAAP
International Financial Reporting Standards (IFRSs) are issued by the:
A. FASB
B. IASB
C. SEC
D. EU
B. IASB
The Sarbanes Oxley Act does all of the following except:
A. requires codes of ethics for senior financial officers.
B. transfers the final authority for GAAP to the PCAOB.
C. strengthens independence rules for auditors.
D. requires independence and financial expertise for members of the audit committee
B. transfers the final authority for GAAP to the PCAOB.
All of the following statements are true regarding convergence of U.S. GAAP with iGAAP except:
A. foreign companies that trade shares in U.S. markets are required to reconcile their accounting with U.S. GAAP under these convergence efforts.
B. the IASB has looked to the United States to determine the structure it should follow in establishing iGAAP.
C. iGAAP standard-setting structure is very similar to the standard-setting structure in the United States.
D. iGAAP tends to be less stringent in its disclosure requirements than U.S. GAAP.
A. foreign companies that trade shares in U.S. markets are required to reconcile their accounting with U.S. GAAP under these convergence efforts.
The historical cost principle applies even when a firm is not a going concern.
A. True
B. False
B. False
There are no exceptions to the revenue recognition rule that revenue is only recognized at the time of sale.
A. True
B. False
B. False
The full disclosure principle requires that all information that is of sufficient importance to influence the judgment and decisions of informed users be disclosed in the main body of the financial statements and in the notes to the financial statements.
A. True
B. False
B. False
The pervasive criterion of accounting information is decision usefulness.
A. True
B. False
A. True
Information that has been measured and reported in a similar manner for different enterprises is considered comparable.
A. True
B. False
A. True
For information to be reliable, it needs to have predictive or feedback value.
A. True
B. False
B. False
The FASB sometimes issues standards that have undesirable economic effects on an industry or company.
A. True
B. False
A. True
The periodicity assumption specifies that the appropriate time period for financial reporting is the calendar year.
A. True
B. False
B. False
Certain financial instruments are reported at fair value rather than historical cost.
A. True
B. False
A. True
Costs are classified as period costs when a company cannot establish a direct relationship between the cost and revenues.
A. True
B. False
A. True
The objective of the joint project of the IASB and the FASB is to develop a conceptual framework to replace the going concern concept.
A. True
B. False
B. False
The conceptual framework contains how many Statements of Financial Accounting Concepts that related to financial reporting for business enterprises?
A. 7
B. 6
C. 5
D. 4
B. 6

The framework consists of 6 Statements of Financial Accounting Concepts. SFAC 1 –3 and 5 – 7. SFAC 4 deals with non-business enterprises
The conceptual framework for financial reporting consists of how many levels?
A. 1
B. 2
C. 3
D. 4
C. 3
Which level of the conceptual framework is devoted to recognition and measurement concepts?
A. First.
B. Second.
C. Third.
D. All three levels
C. Third


The third level which consists of assumptions, principles, and constraints
The primary qualities of accounting information are:
A. comparability and consistency.
B. relevance and consistency.
C. comparability and reliability.
D. relevance and reliability
D. relevance and reliability
All of the following are ingredients of reliability, except:
A. feedback value.
B. neutrality.
C. representational faithfulness.
D. verifiability
A. feedback value
Which of the following elements of financial statements is the result of transactions, events, or circumstances that affect an enterprise during a period of time?
A. Assets.
B. Liabilities.
C. Equity.
D. Comprehensive income
D. Comprehensive income
The assumption that allows the merging of a parent company and its subsidiaries for financial reporting purposes is the:
A. going concern assumption.
B. economic entity assumption.
C. monetary unit assumption.
D. periodicity assumption
B. economic entity assumption
Which assumption makes the current – noncurrent classification of assets and liabilities on the balance sheet useful?
A. Going concern assumption.
B. Economic entity assumption.
C. Monetary unit assumption.
D. Periodicity assumption.
A. Going concern assumption
Which of the following is an important advantage of using cost over other possible valuations?
A. Reliability.
B. Relevance.
C. Comparable.
D. All of the above
D. All of the above
Nominal accounts are periodically closed.
A. True
B. False
A. True
Dividends are increased on the debit side.
A. True
B. False
A. True
Transactions are initially recorded in the general ledger.
A. True
B. False
B. False
When an item of expense is paid and recorded in advance, it is normally called an accrued expense.
A. True
B. False
B. False
In a periodic inventory system, purchases and sales are recorded directly in the inventory account as the purchase and sales occur.
A. True
B. False
B. False
Revenue, equity and liability accounts have normal credit balances.
A. True
B. False
A. True
When an item of revenue is collected and recorded in advance, it is normally called a prepaid revenue.
A. True
B. False
B. False
The book value of an asset is cost less salvage value.
A. True
B. False
B. False
Depreciation and amortization allocate the cost of a long-term assets to the periods which benefit from their use.
A. True
B. False
A. True
The revenue recognition principle requires that bad debts be estimated and expensed in the period of the sale.
A. True
B. False
B. False
Since non-U.S. markets are not affected by the Sarbanes Oxley Act (SOX), internal controls will not be discussed as part of the convergence efforts of the FASB and IASB.
A. True
B. False
B. False
In a double entry system every transaction affects:
A. only one account.
B. at least two accounts.
C. three or more accounts.
D. only two accounts
B. at least two accounts
In a proprietorship, the Capital account takes the place of all of the following corporation accounts except:
A. Common Stock.
B. Additional Paid in Capital.
C. Retained Earnings.
D. Dividends
D. Dividends
Which of the following is a real account?
A. Common Stock.
B. Dividends.
C. Sales.
D. Depreciation Expense
A. Common Stock
Which of the following steps in the accounting cycle is not optional?
A. Work sheet.
B. Reversing entries.
C. Adjusted trial balance.
D. Post closing trial balance
C. Adjusted trial balance
Journal entries are listed in:
A. numerical sequence.
B. alphabetical sequence.
C. chronological sequence.
D. random sequence
C. chronological sequence
Which of the following errors would cause a trial balance to not balance?
A. Not journalizing a transaction.
B. Not posting a journal entry.
C. Posting a journal entry twice.
D. Recording a transaction with several errors that are not offsetting.
D. Recording a transaction with several errors that are not offsetting
Adjusting entries can be classified as either:
A. accruals or reversals
B. prepayments or accruals.
C. real or nominal.
D. internal or external.
B. prepayments or accruals
The difference between the cost of any depreciable asset and its related account, Accumulated Depreciation is referred to as the asset's:
A. book value.
B. fair value.
C. market value.
D. real value.
A. book value
Unearned revenues are classified as:
A. assets.
B. liabilities.
C. revenues.
D. stockholders' equity
B. liabilities.
A perpetual inventory system does not contain which of the following accounts?
A. Merchandise inventory.
B. Cost of goods sold.
C. Purchases.
D. Sales Revenue
C. Purchases
The party to whom a check is made out is called the _______________________.
payee
The amount that the bank charges a depositor for handling checks and collections is
called a(n) _______________________.
service charge
The method used to transfer title of a check is known as a(n) ___________________.
endorsement
Varieties of coins and currency are called _______________________.
denominations
Checks issued by the depositor that have been paid by the bank and included with
the bank statement are called _______________________.
canceled checks
An endorsement that prevents further circulation of a check is called a(n)
restrictive endorsement
The party who writes the check is called the
drawer
On a bank reconciliation, the balance of the Cash account in the general ledger is
called the
ledger balance of cash
A deposit not recorded on the bank statement because the deposit was made between
the bank’s cut-off date and the time the statement is received is called a(n)
deposit in transit
The _______________________ is a cash fund used to handle transactions where
customers pay cash for goods and services
change fund