Term
| In United States, the ________ has the power to set accounting rules for publicly-traded companies. |
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Definition
| Securities and Exchange Commission |
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Term
| What is the effect on accounting equation if office supplies are purchased on credit? |
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Definition
| Decrease in assets and increase in liabilities. |
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Term
d. Property, plant, and equipment is recorded at cost (less any accumulated depreciation) instead of liquidation value.
Identify the accounting assumption that is most applicable to each of the following statements. |
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Definition
continuity (or going concern) assumption
-One of the four basic assumptions that underlie accounting that assumes a company will continue to operate long enough to carry out its existing commitments. |
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Term
| economic entity assumption |
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Definition
| One of the four basic assumptions that underlie accounting that assumes each company is accounted for separately from its owners. |
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Term
a. A company recognizes revenue when the goods are delivered to a customer, even though cash will not be collected from the customer for 30 days.
Identify the accounting principle that is most applicable to each of the following statements. |
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Definition
revenue recognition principle
-A principle that requires revenue to be recognized or recorded in the period in which it is earned and the collection of cash is reasonably assured. |
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Term
| b. Land, located in a desirable location, is reported at the original acquisition price, even though its value has increased by over 100 percent since it was purchased. |
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Definition
historical cost principle
-A principle that requires the activities of a company to be initially measured at their cost—the exchange price at the time the activity occurs. |
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Term
| c. The cost paid for a delivery truck is recorded as an asset and expensed over the next five years as it is used to help generate revenue. |
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Definition
matching principle
-A principle that requires an expense to be recorded and reported in the same period as the revenue that it helped generate. |
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Term
| d. Inventory, which was recently damaged by a flood, is reported at the lower of its cost or market value. |
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Definition
conservatism principle
-A principle which states that when more than one equally acceptable accounting method exists, the method that results in the lower assets and revenues or higher liabilities and expenses should be selected. |
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Term
| d. Inventory, which was recently damaged by a flood, is reported at the lower of its cost or market value. |
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Definition
conservatism principle
-A principle which states that when more than one equally acceptable accounting method exists, the method that results in the lower assets and revenues or higher liabilities and expenses should be selected. |
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Term
| qualify for recognition in the financial statements |
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Definition
-. Common stock is issued to investors.
-. Inventory is purchased.
-. A two-year insurance policy is purchased.
-. Inventory is sold to customers.
NOT recognized:
- Two investors sell their common stock to another investor.
-. An agreement is signed with a janitorial service to provide cleaning services over the next 12 months. |
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Term
| Requirements to be recognized in the financial statements |
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Definition
1.contracted party performs responsibilities (not the actual signing)
2. When the buyers receives the asset
3.or pays the seller (whichever comes first)
4.must be possible to reliably measure
effects of price increase not measurable directly so not recognized) |
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Term
| An accounting transaction results from an.. |
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Definition
| an economic event that causes one of the elements of the financial statements to change and that can be measured reliably. (elements: assets, liabilities, SE, revenues or expenses) |
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