Book 1 - Chapter 18

Multiple Choice

1.	d
2.	b The Internal Revenue Service has rules, but they are about determining the correct amount of tax. This is not an objective of financial reporting.
3.	d Remember the cost rule. An appraiser would have to restate the balance sheet to estimate current values. Even this can be quite subjective.
4.	c
5.	a
6.	c
7.	a The general rule for recording revenue is when it is earned. This is when a valid sale of a service or product is made.
8.	c
9.	a The historical cost principle requires that original cost be used. No exceptions apply here.
10.	c
11.	d
12.	c
13.	b
14.	b
15.	d
16.	b
17.	a
18.	d
19.	a The merchandise has not been delivered to the customer.
20.	c
21.	a
22.	c When subtracted from the related revenues, this results in the correct net income.

Answers to Discussion Questions and Brief Exercises for Learning Goal 18

1.	GAAP stands for “generally accepted accounting principles.” A principle is a rule or guideline; therefore, GAAP refers to the rules and guidelines that businesses must use when recording accounting transactions and preparing financial statements.
2.	The two general categories of GAAP are broad GAAP and specific GAAP. Broad GAAP refers to general rules that are applied first in all situations. Examples of broad GAAP are the reliability principle, the cost principle, the revenue recognition principle, the matching principle, and the full disclosure principle. Specific GAAP are rules that apply to specific kinds of transactions or situations. There are many specific GAAP rules. You will learn these as you progress through your study of accounting.
3.	GAAP comes from several sources. The most important source is the Financial Accounting Standards Board (FASB). This is the highest standard-setting authority in the accounting profession. The Financial Accounting Standards Board issues official pronouncements called Statements of Financial Accounting Standards (SFAS).
	Other sources of GAAP within the profession are technical bulletins, audit and accounting rules by the AICPA (American Institute of Certified Public Accountants), and Emerging Issues Task Force (EITF) positions and recommendations. Also, long-standing industry practice that is not superseded by official pronouncements becomes a source of GAAP.

Learning Goal 18

SOLUTIONS

Learning Goal 18: Describe the Conceptual Framework of Accounting

Home

Home || Book Publications || Professor’s Office || Student Info & Resources || Useful Links

Worthy & James Publishing is a provider of basic accounting books covering fundamental accounting principles, business accounting, and business math. Topics in financial accounting and business accounting covered include the balance sheet, the income statement, financial ratios, and bank reconciliation.