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Accounting 3366 Exam 1 Study Guide

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Accounting 3366 Exam 1 Study Guide ACCT 3366

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These notes cover chapter 2 and 3 for the first exam.
Financial Reporting Frameworks
Vinita Ramaswamy
Study Guide
Accounting, Studyguide, chapter2, Chapter3
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This 16 page Study Guide was uploaded by Notetaker on Monday September 19, 2016. The Study Guide belongs to ACCT 3366 at University of Houston taught by Vinita Ramaswamy in Fall 2016. Since its upload, it has received 11 views.

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Date Created: 09/19/16
Accounting 3366 Exam 1 Study Guide Chapter 2,  Vocabulary: Conceptual Framework: establishes the concepts that underlie financial reporting.  Look at page 4, (Overview of the Conceptual Framework) Illustration 2­1  The first level is the objective of financial reporting; it is the purpose of the  financial reporting.  The second level is the qualitative characteristics, it is the bridge between, it  makes accounting information useful   The third level is the recognition, measurement, and disclosure concepts, it  is establishing and applying accounting standards and specific concepts to  implement the objective.  Objective of financial reporting: is the foundation of the conceptual framework.   Other aspects of framework: qualitative characteristics, elements of financial statements, recognition, measurement, and disclosure­flow logically from  the objective.  Useful to present and potential equity investors, lenders and other creditors  in making decisions about providing resources to the entity. Relevance: accounting information must be capable of making a difference in  decision.  Financial information had predictive value  Predictive value: if it has value as an input to predictive processes used by  investors to form their own expectations about the future. Confirmatory value: Relevant information also helps users confirm or correct prior  expectations. Materiality: is a company­specific aspect of relevance. Faithful Representation: means that the numbers and descriptions match what  really existed or happened.  Completeness: means that all the information that is necessary for faithful  representation is provided.  Neutrality: means that a company cannot select information to favor one set of  interested parties over another.  Free From Error: an information item that is free from error will be a more  accurate (faithful) representation of financial item.  Comparability: enables users to identify the real similarities and differences in  economic events between companies.  Verifiability: occurs when independent measurers, using the same methods, obtain  similar results.  Timeliness: means having information available to decision­makers before it loses  its capacity to influence decisions.  Understandability: is the quality of information that lets reasonably informed users  see its significance.  Look at page 53 (Elements of Financial Statements) it is important to know this  4 basic assumptions underlie the financial accounting structure: 1. Economic entity 2. Going concern 3. Monetary unit 4. Periodicity  Economic entity assumption: means that economic activity can be identified with a particular unit of accountability. Going concern assumption: that the company will have a long life. Monetary Unit assumption: means that money is the common denominator of  economic activity and provides an appropriate basis for accounting measurement  and analysis.  Periodicity (or time period) assumption: implies that a company can divide its  economic activities into artificial time periods. (monthly, quarterly, and yearly)  Principles of accounting: to record and report transactions: 1. Measurement, 2.  Revenue recognition, 3. Expense recognition, and 4. Full disclosure  Historical cost principle: GAAP requires that companies account for and report  many assets and liabilities on the basis of acquisition price.   Historical cost is generally thought to be verifiable.  Fair value: is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the  measurement date.”   Revenue Recognition Principle: requires that companies recognize revenue in the  accounting period in which the performance obligation is satisfied.    Expense Recognition Principle: “Let the expense follow the revenue” Companies  recognize expenses not when they pay wages or make a product, but when the  work (service) or the product actually contributes to revenue.  Look at page 59 (The Five Steps of Revenue Recognition)  Period Costs: such as officers’ salaries and other administrative expenses attach to  the period  Product Costs: such as material, labor, and overhead, attach to the product.  Full disclosure Principle: It recognizes that the nature and amount of information  included in financial reports reflects a series of judgmental trade­offs. Financial Statements: are the balance sheet, income statement, statement of cash  flows, and statement of owners’ equity Notes to Financial statements: generally, amplify or explain the items presented in  the main body of the statements.  Supplementary information: may include details or amounts that present a different perspective from that adopted in the financial statements.  Cost constraint (cost­benefit relationship): Companies must consider an overriding  factor that limits the reporting.    Brief Exercise: 2.1 Solution a. Comparability b. Timeliness c. Predictive value d. Relevance e. Neutrality Brief Exercise: 2.2 Solution a. Faithful Representation b. Confirmatory value c. Free from error d. Completeness e. Understandability Brief Exercise: 2.4 Solution a. Verifiability b. Comparability c. Consistency d. Timeliness Brief Exercise: 2.6 Solution a. Equity b. Revenue c. Equity d. Asset e. Expense f. Loss g. Liability h. Distribution i. Gain j. Investments Brief Exercise: 2.8 Solution a. Periodicity b. Monetary unit c. Going­concern d. Economic entity Brief Exercise: 2.10 Solution a. Revenue recognition b. Expense recognition c. Full disclosure  d. Measurement Exercise: 2.3 Solution a. Confirmatory value  b. Cost c. Mutuality  d. Consistency   e. Neutrality f. Relevance  g. Timeliness h. Relevance  i. Comparability  j. Verifiability  Chapter 3 Notes  Lucky Solution (refer to your package for the questions)  Adjusted Trial Balance:  More Practice Problems:   Cash to Accrual  Don’t Forget to look over: 1. The WileyPlus homework 2. Review Closing entries, Reversing Entries, Lucky   3. Read the Chapters, Practice some example questions and GOOD LUCK!!!


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