CH1

Question 1

2 Fundamental qualities

Answer 1

Relevance quality and faithful representation

Question 2

Type of Relevance qualities

Answer 2

Predictive value, confirmatory value, and materiality

Question 3

Types of Faithful representation

Answer 3

Completeness, neutrality, and free from error

Question 4

Enhancing qualities

Answer 4

Compatibility, verifiability, timeliness, and understandability

Question 5

Relevance qualities

Answer 5

If they’re relevant enough to make a difference in decision making

Question 6

Predictive value

Answer 6

Info has predictive value and help users to make their own future expectations of the entity

Question 7

Confirmatory value

Answer 7

Helps users to confirm or correct prior expections

Question 8

Materiality

Answer 8

-A company-specific aspect of relevance
-very relative
-if the amount is significant enough to make a difference

Question 9

Completeness

Answer 9

All info that is necessary is provided

Question 10

Neutrality

Answer 10

-unbiased
-cannot select info to favor one set of interested parties over another

Question 11

Free from error

Answer 11

-if has no error
-will be accurate of a financial item

Question 12

Comparability

Answer 12

Info is measured and reported in a similar format/manner for different companies from 1year to another

Question 13

Verifiability

Answer 13

Independent measurers uses the same methods, obtain similar results

Question 14

Timeliness

Answer 14

Have info available to decision makers before it losses value to influence decisions

Question 15

10 Elements

Answer 15

1) Assets
2) Liabilities
3) Equities
4) Investments by owners
5) Distributions to owners
6) Comprehensive income
7) Revenues
8) Expenses
9) Gains
10) Losses

Question 16

Asset

Answer 16

Probable future economic benefits from an entity as a result of past transactions or events

Question 17

Liabilities

Answer 17

Probable future sacrifices of economic benefits from the entity to transfer assets or provide services to other entities in the future as a result of past transactions and events

Question 18

Equity

Answer 18

-The remaining difference of the assets and liabilities
-residual interests in the assists of an entity that remains after deducting its liabilities

Question 19

Investments by owners

Question 20

Distributions to owners

Answer 20

Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise owners
(Ex: pay divident)
Decreases equity

Question 21

Going concern

Answer 21

Company to last long enough to fulfill objectives and commitments
(assume company will live long enough)

Question 21

Comprehensive income

Answer 21

change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources

Question 22

Revenues

Answer 22

inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering serviced, or other activities that constitute the entity’s ongoing major or central operation (everyday operation)

Question 23

Expenses

Answer 23

outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations
(COGS is the most important expense)

Question 24

Gains

Answer 24

Increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners

Question 25

Losses

Answer 25

Decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners (like natural disasters)

Question 26

Type of Qualitative characteristics

Answer 26

Fundamental qualities and enhancing qualities

Question 27

Recognition, Measurement and Disclosure Concepts

Answer 27

Assumptions, Principles, and Constraints

Question 28

Types of Assumptions

Answer 28

Economic entity Going concern Monetary unit Periodicity

Question 29

Economic entity

Answer 29

company keeps its activity separate from its owners and other business (Parent company and its subsidiary are considered one-single financial reporting entity so they go on the same financial report)

Question 30

Types of Principles

Answer 30

Measurement Revenue recognition Expense recognition Full disclosure

Question 31

Monetary unit

Answer 31

money is the common denominator ignore inflation/deflation (in general, USD is stable and assume they will be the same and stable)

Question 32

Periodicity

Answer 32

Company can divide its economic activities into time periods (Months, quarters, or years)

Question 33

Type of Constraint

Answer 33

Cost

Question 34

Expense recognition

Answer 34

let the expense follow the revenues (matching principle) when asset stops working then it becomes an expense

Question 35

Measurement Principle

Answer 35

most commonly used measurements are based on historical cost (PPE) and fair value (financial instrument)

Question 36

Revenue recognition

Answer 36

requires that companies recognize revenue in accounting period in which the performance obligation is satisfied, regardless of when cash is collected

Question 37

Full disclosure

Answer 37

providing info that is of sufficient importance to influence the judgment and decisions of an informed user

Question 38

Cost effectiveness (cost/benefit constraint)

Answer 38

Benefit should always out-weight the cost Conservatism