Deck 2: Accounting Principles

Question 1

Conservatism in accounting means the accountant should understate assets and income.

Answer 1

False

Question 2

Consistent use of the same accounting principles and methods is unnecessary for meaningful analysis of accounting information and trends.

Answer 2

True

Question 3

Which of the following is the correct representation of qualitative characteristics? $\begin{array}{llcc}&\underline{\text {Relevance}}&&&&\underline{\text {Reliability}}\end{array}$

A) $\begin{array}{llcc}\text {Predictive Value }&&\text { Feedback Value }\end{array}$

B) $\begin{array}{llcc}\text { Timely }&&&&&&& \text {Neutral }\end{array}$

C) $\begin{array}{llcc}\text { Feedback Value } && \text { Predictive Value} \end{array}$

D) $\begin{array}{llcc}\text { Verifiable } & &&&\text { Faithful Representation } \end{array}$

Answer 3

$\begin{array}{llcc}\text { Feedback Value } && \text { Predictive Value} \end{array}$

Question 4

The FASB conceptual framework identifies information useful to those making investment and credit decisions.

Question 5

Information that relates to a firm's solvency is used to assess the firm's ability to

A)convert assets to cash.
B)pay its debts.
C)collect its receivables on time.
D)prepare income tax information.

Question 6

The conceptual framework does not include

A)objectives of financial reporting.
B)elements of financial statements.
C)operating guidelines.
D)quantitative characteristics of accounting information.

Question 7

To be reliable, accounting information should have predictive value or feedback value, and be reported on a timely basis.

Question 8

The time period assumption states that the economic life of a business can be divided into

A)equal time periods.
B)cyclical time periods.
C)artificial time periods.
D)perpetual time periods.

Question 9

The revenue recognition principle dictates that revenue should be recognized in the accounting period in which cash is received.

Question 10

Relevant accounting information

A)is information that has been audited.
B)must be reported within the operating cycle or one year, whichever is longer.
C)has been objectively determined.
D)is information that is capable of making a difference in a decision.

Question 11

Depreciation and amortization policies can be justified on the basis of the going concern assumption.

Question 12

Generally accepted accounting principles are uniform throughout the world.

Question 13

A company can change to a new method of accounting if management can justify that the new method results in

A)more meaningful financial information.
B)a higher net income.
C)a lower net income for tax purposes.
D)less likelihood of clerical errors.

Question 14

Which of the following is not a goal of financial reporting?

A)To provide information that is useful to those making investment decisions
B)To provide information that is useful to those making credit decisions
C)To provide information that is useful in understanding everything about the company
D)To provide information that identifies changes in resources and claims

Question 15

The

Question 16

The going concern assumption assumes that the business

A)will be liquidated in the near future.
B)will be purchased by another business.
C)is in a growth industry.
D)will continue in operation long enough to carry out its existing objectives and commitments.

Question 17

If generally accepted accounting principles did not exist,

A)comparability between companies' financial statements would be enhanced.
B)financial statements of different companies would be presented more uniformly.
C)each company would have to develop its own set of accounting practices.
D)social welfare would have greater potential of being maximized.

Question 18

The economic entity assumption states that

A)the economic life of a business can be divided into artificial time periods.
B)economic events can be identified with a particular entity.
C)the accounting period should not exceed one year.
D)it is assumed that the business will operate indefinitely.

Question 19

GAAP are standards and rules recognized as a general guide for financial reporting purposes.

Question 20

Which of the following statements is not true?

A)Comparability means using the same accounting principles from year to year within a company.
B)Reliability of information gives assurance that the information is free of error or bias.
C)Relevant accounting information must be capable of making a difference in the decision.
D)The FASB concluded that the overriding criterion by which accounting choices can be judged is decision usefulness.

Question 21

The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is

A)collected.
B)earned.
C)most likely to be collected.
D)earned and collected.

Question 22

The information provided in the notes that accompany financial statements is required because of the

A)cost principle.
B)full disclosure principle.
C)
D)revenue recognition principle.

Question 23

Expenses are recognized when

A)cash is paid.
B)the work is performed.
C)the product is produced.
D)they make their contribution to revenue.

Question 24

In applying the operating guidelines within the conceptual framework, an item is considered material if

A)it costs a lot of money.
B)it is of a tangible nature.
C)it is likely to influence the decision of a reasonably prudent investor or creditor.
D)the cost of reporting the item is greater than its benefits.

Question 25

An example of an expired cost is

A)inventory.
B)sales salaries.
C)prepaid expenses.
D)plant assets.