Going concern principle: The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless the evidence shows that it will not continue. Objectivity principle: The accounting guideline that requires financial statement information to be supported by independent , unbiased evidence rather than someone’s opinion; objectivity adds to the reliability, verifiability, and usefulness of accounting information. Cost principle: The accounting principle that requires financial statement information to be based on actual costs incurred in business transactions; it requires assets and services to be recorded initially at the cash or cash equivalent amount given in exchange. Revenue recognition principle: Provides guidance on when revenue should be reflected on the income statement; the rule states that revenue is recorded at the same time it is earned regardless of whether cash or another asset has been exchanged. Business Organizations Single proprietorship: A business owned by one individual, which is not organized as a corporation; also called a sole
Judgement Case 9-1 – Inventory costs; lower of cost or market; retail inventory method Requirement 1 Theoretically, Hudson should account for the warehousing costs related to its wholesale inventories as a part of inventory. All of the necessary costs associated with preparing, and in this case storing, items for sale are to be included in inventory. The key here is that the warehousing cost is related to a particular set of items and for that reason it is important to account for the warehousing cost with the inventory in order to satisfy the matching principle. The matching principle “requires that revenues and any related expenses be recognized together in the same period” (The matching principle). By following the matching principle all of the costs associated with a particular product, not just its wholesale price, is expensed when the item is sold.
Robbin Industries is jeopardizing itself by not properly reporting the advertising costs. As an operating company, they must understand the generally accepted accounting principles and adhere to them (Weygandt, Kieso, & Kimmel, 2010). (c) What would you do if you were Wayne Terrago? Wayne Terrago should try to report the financial condition and results of operations fairly and in accordance with the generally accepted accounting principles. As controller, Wayne should inform management and understand what is acceptable according to the GAAP.
Material participation is a concept used by the law to determine what qualifies as a passive activity. A passive activity is defined as any business or trade activity that the taxpayer does not materially participate in running. Therefore, material participation as a concept helped with the difficulty in dealing with such a subjective issue. It is important to distinguish passive income from active income, since losses are treated differently under each classification on the taxpayer’s tax return. Problems:
Review Memo to the Executive Vice-President This message should be short but complete coverage of the subject matter. The information remaining should be worded concisely. The executive vice-president would like to know the differences between the two terms LIFO and FIFO so that the management can decide which inventory valuation method the company should use. Therefore, focusing on how it would affect on the P&L statements is necessary. Start the memo by mentioning to the main point that he is looking for.
The income statements of service business normally have separate sections for operating revenues, operating expenses, and other income (expenses). In contrast, those of retailers, wholesalers, and manufacturers disclose sales revenue, followed immediately by cost of goods sold and gross margin. Operating expenses are listed next followed by other income (expenses). 4. The basic difference falls in the area of inventory.
First, according to the ASC 605-25-25-6, “a delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be determined for those combined deliverables as a single unit of accounting.” If the Power starterpack is not a separate deliverable, it shall be considered as a single unit of accounting, which is not a separate unit of accounting. Power starterpack is sold as a bundle, and only one stream of revenue. That means the activation card has to be sold as combination with service, and only recognize $200 as revenue. 2. The activation card is a separate deliverable and a separate unit of accounting.
The primary goal of the BCP for Mosaic is to have the Incident Response team in place so that systems, networks and data are recovered in a timely manner. During the course of an event, the incident response team is initiated and the Business unit SME is called upon when the systems they managed are directly affected during the Recovery phase. During this phase the Business unit SME will recover the systems from good known backups in the least amount of time possible. Once the systems, networks and/or data is recovered the Business Unit SME will notify management that systems, networks and/or data has been recovered. For example, during the event of a malicious code that was located on a business critical file server.
In my opinion, it is not ethical for a CPA or CPA firm to help companies “manage” their reported earnings and financial condition. The framework of Ethical Reasoning comprises five parts: Opinion, self-interest, consequence, duty, and character. This framework can help us better analyze this matter. First, opinion puts self-interest aside to see into this matter. If a CPA or CPA firm first serves as a consultant then as the given entity’s auditor, it is auditing its own work.
Chapter 6 Business Continuity Planning and Disaster Recovery Planning Chapter Objectives After reading this chapter and completing the exercises, you will be able to do the following: ■ ■ ■ ■ ■ ■ ■ ■ Distinguish between the business continuity plan (BCP) and the disaster recovery plan (DRP). Follow the steps in the BCP. Inform business executives why planning is important. Define the scope of the business continuity plan. Identify types of disruptive events.