MHA 706 Module 2
Financial Accounting - answer involves identifying, recording and communicating the
operational results and status of organization. (i.e. income statement, statement of
changes in equity, balance sheet, and statement of cash flows)
Do not for profit organizations have to prepare financial statements? - answer Yes- they
also have stakeholders and managers that have an interest in financial reporting
Should the preparation and presentation of financial accounting data be regulated? -
answer Yes, it is important to have financial reporting that is accurate and based on
reliable data.
SEC - answerhas legal authority to regulate the form and content of financial statements
GAAP- applies only to financial accounting statements - answer The conventions that
have evolved from the pronouncements and rulings of the implementing organizations
constitute a set of guidelines for the preparation of financial accounting statements
Does GAAP remain static over time? - answerno, because business practices are
continuously evolving, so GAAP also has to adapt accordingly.
Assumptions - answeraccounting entity, going concern, periodicity, and monetary unit
Accounting entity - answerthe specific entity for which the statements apply can be
defined
Going concern - answerit is assumed that the entity will have an indefinite lifetime rather
than be liquidated in the near future
Monetary unit - answerin the US, the unit is the US dollar, unadjusted for inflation and
deflation
Historical costs - answerRequires most assets to be valued at acquisition (historical)
costs rather than fair market (current) value
Revenue recognition - answerRevenues must be recognized in the period in which they
are realizable and earned
Expense matching - answerExpenses must be matched (in time) to the related
revenues
, Full disclosure - answerFinancial statements must contain a complete picture of the
economic (financial) events of the organization
Which two principles are related? - answerRevenue recognition and full disclosure-
financial statements must capture a complete picture of the economic or financial
events of the organization
Materiality - answerTo keep statements manageable, only entries that are important to
the operational and financial status of the organization need be separately identified
Cost Benefit - answerFinancial statements cannot report all possible information that
every potential user might find relevant. When deciding what information should be
reported and how it will be done, standard setters must determine whether the benefits
outweigh the associated costs
cash accounting recognizes - answeran event when a cash transaction takes place
accrual accounting recognizes - answeran even when a cash obligation is created (is
required by GAAP)
Transaction - answeris an exchange of goods (including cash) or services from one
individual or business to another
unique activity - answeronce a transaction is identified, it must be recorded or posted to
an account
chart of accounts - answerassign numeric identifiers to individual accounts
Double entry system - answerjournal entries are always posted twice
T accounts - answerto handle the double entries
Journal data - answerincome statement, statement of changes in equity, balance sheet,
and statement of cash flows
Disseminating financial statements- annual report - answerIt begins with a verbal
discussion of current operating results and expectations for the future.
Followed by the financial statements, which include notes and supplementary
information
what other names can income statement be called - answerstatement of operations,
statement of activities, and statement of revenues and expense
What does the income statement report? - answerthe results of operations over some
period of time w. 3 key elements (revenues, expenses, and profit)
Financial Accounting - answer involves identifying, recording and communicating the
operational results and status of organization. (i.e. income statement, statement of
changes in equity, balance sheet, and statement of cash flows)
Do not for profit organizations have to prepare financial statements? - answer Yes- they
also have stakeholders and managers that have an interest in financial reporting
Should the preparation and presentation of financial accounting data be regulated? -
answer Yes, it is important to have financial reporting that is accurate and based on
reliable data.
SEC - answerhas legal authority to regulate the form and content of financial statements
GAAP- applies only to financial accounting statements - answer The conventions that
have evolved from the pronouncements and rulings of the implementing organizations
constitute a set of guidelines for the preparation of financial accounting statements
Does GAAP remain static over time? - answerno, because business practices are
continuously evolving, so GAAP also has to adapt accordingly.
Assumptions - answeraccounting entity, going concern, periodicity, and monetary unit
Accounting entity - answerthe specific entity for which the statements apply can be
defined
Going concern - answerit is assumed that the entity will have an indefinite lifetime rather
than be liquidated in the near future
Monetary unit - answerin the US, the unit is the US dollar, unadjusted for inflation and
deflation
Historical costs - answerRequires most assets to be valued at acquisition (historical)
costs rather than fair market (current) value
Revenue recognition - answerRevenues must be recognized in the period in which they
are realizable and earned
Expense matching - answerExpenses must be matched (in time) to the related
revenues
, Full disclosure - answerFinancial statements must contain a complete picture of the
economic (financial) events of the organization
Which two principles are related? - answerRevenue recognition and full disclosure-
financial statements must capture a complete picture of the economic or financial
events of the organization
Materiality - answerTo keep statements manageable, only entries that are important to
the operational and financial status of the organization need be separately identified
Cost Benefit - answerFinancial statements cannot report all possible information that
every potential user might find relevant. When deciding what information should be
reported and how it will be done, standard setters must determine whether the benefits
outweigh the associated costs
cash accounting recognizes - answeran event when a cash transaction takes place
accrual accounting recognizes - answeran even when a cash obligation is created (is
required by GAAP)
Transaction - answeris an exchange of goods (including cash) or services from one
individual or business to another
unique activity - answeronce a transaction is identified, it must be recorded or posted to
an account
chart of accounts - answerassign numeric identifiers to individual accounts
Double entry system - answerjournal entries are always posted twice
T accounts - answerto handle the double entries
Journal data - answerincome statement, statement of changes in equity, balance sheet,
and statement of cash flows
Disseminating financial statements- annual report - answerIt begins with a verbal
discussion of current operating results and expectations for the future.
Followed by the financial statements, which include notes and supplementary
information
what other names can income statement be called - answerstatement of operations,
statement of activities, and statement of revenues and expense
What does the income statement report? - answerthe results of operations over some
period of time w. 3 key elements (revenues, expenses, and profit)
