Following are a series of statements regarding topics discussed in this chapter.
Required:
Indicate whether each statement is true (T) or false (F).
(a) Common current assets include cash, short-term investments, prepaid expenses, and intangible assets.
(b) The revenue and expense recognition rules limit the ability of business executives to freely choose the accounting periods in which to record their firm’s revenues and expenses.
(c) Operating expenses include sales commissions, advertising costs, and salaries of a firm’s top executives.
(d) Revenue minus expenses is equal to gross profit.
(e) The revenue recognition principle requires that all information needed to obtain a thorough understanding of a company’s financial affairs be included in its financial statements or accompanying narrative disclosures.
(f) The FASB’s conceptual framework project provides a foundation for developing accounting pronouncements.
(g) The matching concept suggests that accountants can prepare meaningful financial reports for business enterprises by dividing their lives into reporting intervals of equal length.
(h) A key advantage of using historical costs for asset valuation purposes is that historical costs are more objective, or verifiable, than current values.
(i) One purpose of an income statement is to reconcile a business’s cash balance at the beginning of a period to its end-of-period cash balance.
(j) To qualify as ‘‘reliable,’’ accounting information should be timely and have feedback value and/or predictive value.
(k) Business transactions are first recorded in the general ledger and then posted to the general journal.
(l) The accounting cycle is always longer than a company’s operating cycle.