ECON301 Chapter 1
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1. **What is the primary objective of financial reporting?
To provide financial information that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity.**
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2. **What does GAAP stand for?
Generally Accepted Accounting Principles.**
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3. **Which U.S. federal agency has the authority to oversee financial reporting for public companies?
The Securities and Exchange Commission (SEC).**
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4. **What is the purpose of the Financial Accounting Standards Board (FASB)?
To establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.**
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5. **What is the Economic Entity Assumption?
The assumption that economic activity can be identified with a particular unit of accountability, separate from its owners and other entities.**
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6. **What is the Going Concern Assumption?
The assumption that a company will continue to operate for the foreseeable future.**
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7. **What does the Monetary Unit Assumption imply?
That money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.**
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8. **What is the Periodicity Assumption?
The assumption that a company can divide its economic activities into artificial time periods for reporting purposes.**
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9. **What is the Measurement Principle?
It includes historical cost (recording assets at their cost) and fair value (reporting assets and liabilities at their current market value).**
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10. **What does the Revenue Recognition Principle state?
Revenue is recognized when the performance obligation is satisfied, typically when goods or services are delivered to the customer.**
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11. **What is the Expense Recognition Principle?
Expenses should be recognized in the period in which they contribute to generating revenues, often called the matching principle.**
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12. **What is the Full Disclosure Principle?
The principle that requires companies to provide all information that is relevant to users’ decision-making in financial reports.**
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13. **What is the purpose of the FASB Codification?
To provide a single, authoritative source of U.S. GAAP that simplifies access to accounting standards.**
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14. **Which body is responsible for developing international financial reporting standards?
The International Accounting Standards Board (IASB).**
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15. **How does GAAP differ from IFRS?
GAAP is more rules-based, while IFRS is more principles-based, allowing for more flexibility.**
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16. **What is the significance of the term "public/private partnership" in accounting?
It reflects the SEC’s support for the FASB, indicating that financial statements conforming to FASB standards are presumed to have authoritative support.**
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17. **What are the elements of financial statements?
Assets, Liabilities, Equity, Revenues, Expenses, Gains, and Losses.**
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18. **What is the conceptual framework in accounting?
A system of objectives and fundamentals that guides the development of standards and ensures consistent financial reporting.**
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19. **What does the term 'materiality' refer to in accounting?
Information is material if omitting or misstating it could influence decisions that users make based on the financial information.**
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20. **What are the two fundamental qualities of accounting information?
Relevance and Faithful Representation.**.
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