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196 True/False questions

  1. New Oaks Winery requires two months to make wine, two years to age it, one month to bottle it, two months to sell it, and one month to collect the receivable. Its operating cycle is:Thirty months.

          

  2. Temporary accounts would not include:Debt instruments with maturity dates of less than three months from the date of the purchase.

          

  3. Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:Debit to investments.

          

  4. In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of:$61,000.

          

  5. The normal treatment of litigation costs to successfully defend an intangible right under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is:GAAP- Capitalize
    IFRS- Expense

          

  6. According to International Financial Reporting Standards, biological assets are valued at:False

          

  7. Porite Company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Porite's practice is an example of:Accrual accounting.

          

  8. On December 31, 2012, Coolwear, Inc. had a balance in its prepaid insurance account of $48,400. During 2013, $86,000 was paid for insurance. At the end of 2013, after adjusting entries were recorded, the balance in the prepaid insurance account was 42,000. Insurance expense for 2013 would be:52,400

          

  9. A future economic benefit owned or controlled by an entity is:A - L - OE = 0.

          

  10. The recognition of which of the following expenses exemplifies the application of the matching principle?Advertising expense.

          

  11. Accrued expenses:Result from services received before payment.

          

  12. Under IFRS, the conceptual framework:Emphasizes the overarching concept of the financial statements providing a "true and fair representation" of the company.

          

  13. Any method of depreciation should be both systematic and rational.The excess of its cost over residual value.

          

  14. Rent collected in advance is:Result from services received before payment.

          

  15. According to International Financial Reporting Standards, the impairment loss for an indefinite-life intangible asset other than goodwill is the difference between book value and the recoverable amount.An increase in other comprehensive income.

          

  16. The matching principle isPaid-in capital.

          

  17. Which of the following accounts has a credit balance?Accrued income taxes payable.

          

  18. Maltec Corporation has started placing its quarterly financial statements on its web page, thereby reducing by 10 days the time to get information to investors and creditors. The qualitative concept improved is:Verifiability.

          

  19. An asset should be written down if there has been an impairment of value that is:Significant.

          

  20. The assumption that in the absence of contrary information a business entity will continue indefinitely is the:Materiality.

          

  21. Which of the following is not true about net operating cash flowPrepaid rent

          

  22. Depreciation, depletion, and amortization:All refer to the process of allocating the cost of long-term assets used in the business over future periods.

          

  23. The capitalized cost of equipment excludes:Involves a two-step process for recoverability and measurement.

          

  24. The full disclosure principle requires a balance between:A - L - OE = 0.

          

  25. Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2013, with principal and interest due on October 31, 2014. The company's fiscal year ends June 30, 2013. What adjusting entry is necessary on June 30, 2013?Interest expense 120
    Interest payable 120

          

  26. A firm's comprehensive income always:$36,000.

          

  27. Changes in the estimates involved in depreciation, depletion, and amortization require retroactive restatement of financial statements.False

          

  28. Constraints on qualitative characteristics of accounting information includeCost-effectiveness

          

  29. Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Unearned premiums account increased from $6 million to $8 million dollars during the year. What is Fink's revenue from earned insurance premiums for the current year?A liability account in the balance sheet.

          

  30. Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase?$455,000.

          

  31. Asset retirement obligations:All of the above are correct.

          

  32. The exclusive right to display a symbol of product identification is a:Trademark

          

  33. On January 1, 2013, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2014. Expenditures on the project were as follows:Dreamworld's average accumulated expenditures for 2013 was:450,000

          

  34. Cash equivalents would include:Debt instruments with maturity dates of less than three months from the date of the purchase.

          

  35. Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave's purchased during the year?1,600,000

          

  36. The cost of self-constructed fixed assets should:Include allocated indirect costs just as they are for production of products.

          

  37. Red Onion Restaurant classifies a six-month prepaid insurance policy as a current asset. Its rationale is based on:A liability account in the balance sheet.

          

  38. Assets acquired by the issuance of equity securities are valued based on:Their fair values or the fair value of the equity securities, whichever is more reasonably determinable.

          

  39. In a nonmonetary exchange of equipment, if the exchange has commercial substance, a gain is recognized if:The fair value of the equipment surrendered exceeds the book value of the equipment given up.

          

  40. According to the conceptual framework, verifiability implies:Consensus

          

  41. Recognition of impairment for property, plant, and equipment is required if book value exceeds:Asset's book value exceeds the undiscounted sum of expected future cash flows.

          

  42. The conceptual framework's recognition and measurement concepts recognize which of the following as an assumption, rather than a principle?Going concern.

          

  43. Under IFRS, the role of the conceptual framework:Includes serving as a guide for practitioners when a specific standard does not apply.

          

  44. In testing for recoverability of property, plant, and equipment, an impairment loss is required if the:Long-term revenue-producing assets.

          

  45. A change in the estimated useful life and residual value of machinery in the current year is handled as:A prospective change from the current year through the remainder of its useful life, using the new estimates.

          

  46. Elements of financial statements do not include:Salaries payable.

          

  47. The exclusive right to benefit from a creative work, such as a film, is a:Copyright

          

  48. According to International Financial Reporting Standards, the impairment loss for property, plant, and equipment is the difference between book value and:Cash-generating unit.

          

  49. Amortization of capitalized computer software costs is:The greater of the percentage-of-revenue method or the straight-line method.

          

  50. To meet the needs of full disclosure, companies use supplemental information, including:True

          

  51. The matching principle is:All of the above are correct.

          

  52. SFAC No.5 focuses on:Result from services received before payment.

          

  53. On September 1, 2013, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to unearned subscriptions revenue. What is the required adjusting entry at December 31, 2013?450,000

          

  54. An important argument in support of historical cost information isInventories routinely and repetitively produced in large quantities.

          

  55. If a company incurs disposition obligations as a result of acquiring an asset:A - L - OE = 0.

          

  56. A change in the estimated recoverable units used to compute depletion requires retroactive adjustments to the financial statements.Is handled prospectively.

          

  57. When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:(S)he usually debits an expense account.

          

  58. Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:Debit to note receivable.

          

  59. A subsequent event for an entity with a December 31, 2013, year-end would not include:A change in the estimated useful lives of equipment in January 2014.

          

  60. Which of the following accounts has a debit balance?Prepaid rent

          

  61. XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:The greater of the percentage-of-revenue method or the straight-line method.

          

  62. According to International Financial Reporting Standards, property, plant, and equipment must be valued at cost less accumulated depreciation.Expensed in the period incurred.

          

  63. On November 1, 2013, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2013?450,000

          

  64. Fundamental qualitative characteristics of accounting information are:Faithful representation and relevance.

          

  65. The factors that need to be determined to compute depreciation are an asset's:A credit to liability.

          

  66. Which of the following types of subsequent expenditures normally is capitalized?Accrued income taxes payable.

          

  67. Permanent accounts would not include:Data to adjust the financial statements so that they are not misleading.

          

  68. In the first year of an asset's life, which of the following methods has the smallest depreciation?Paying wages to company employees.

          

  69. The adjusting entry required to record accrued expenses includes:A credit to liability.

          

  70. Property, plant, and equipment and finite-life intangible assets must be tested for impairment at least once a year.False

          

  71. Interest may be capitalized:Land held for a possible future plant site.

          

  72. Prepayments occur when:Increases in equity from peripheral transactions of an entity.

          

  73. Which of the following is never a current liability account?Accrued income taxes payable.

          

  74. On September 15, 2013, Oliver's Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2013?450,000

          

  75. The FASB's conceptual framework's qualitative characteristics of accounting information include:Cost-effectiveness

          

  76. Primecoat Corporation could disseminate its annual financial statements two days earlier if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is:Long-term revenue-producing assets.

          

  77. Under International Financial Reporting Standards, development expenditures are:Capitalized if certain criteria are met.

          

  78. The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at:Fair value of the asset(s) given up.

          

  79. Of the following, the most important objective for financial reporting is to provide information useful for:Prepaid rent

          

  80. Statutory depletion is the maximum amount of depletion that may be reported in financial statements prepared according to GAAP.False

          

  81. A cause-and-effect relationship is implicit in thematching principle

          

  82. An example of an error would be:Counting an inventory item twice when taking a physical inventory.

          

  83. According to International Financial Reporting Standards, an impairment loss for property, plant, and equipment is required only when an asset's book value exceeds the undiscounted sum of the asset's estimated future cash flows.False

          

  84. Disclosure notes would not include:Data to adjust the financial statements so that they are not misleading.

          

  85. Which of the following does not pertain to accounting for asset retirement obligations?All of the above pertain to accounting for asset retirement obligations.

          

  86. Under International Financial Reporting Standards, research expenditures are:Expensed in the period incurred.

          

  87. Noncurrent assets include:Cannot determine its classification without additional information.

          

  88. Which of the following is not an adjusting entry?Cash
    Unearned Revenue

          

  89. Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.In Case B, Grand Forks would record a gain/(loss) of:$(5,000).

          

  90. Which is a shareholders' equity account in the balance sheet?Paid-in capital.

          

  91. Property, plant, and equipment and intangible assets are:Long-term revenue-producing assets.

          

  92. Assets acquired under multi-year deferred payment contracts are:Valued at the present value of the payments required by the contract.

          

  93. Donated assets are recorded at:Fair value.

          

  94. At the end of its 2013 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available:Provides the auditor's opinion on the effectiveness of internal control.

          

  95. According to International Financial Reporting Standards, the costs to successfully defend an intangible right normally are capitalized and amortized.True

          

  96. One of the advantages of group and composite methods is that gains and losses on the disposal of individual assets need not be computed.Fair value.

          

  97. The purpose of closing entries is to transfer:Counting an inventory item twice when taking a physical inventory.

          

  98. The acquisition costs of property, plant, and equipment do not include:Cost of goods sold.

          

  99. Recognizing expected losses immediately, but deferring expected gains, is an example of:Conservatism.

          

  100. Which of the following is not a potential benefit of accrual accounting, compared to cash-basis accounting?Prepaid rent

          

  101. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2013:Investments consist of treasury bills that were purchased in November and mature in January. Prepaid insurance is for the next two years. What amount should be included in the current asset section of Janson's December 31, 2013, balance sheet?Cost-effectiveness.

          

  102. When a magazine company collects cash for selling a subscription, it is an example of:A prepaid expense transaction.

          

  103. Current assets include cash and all other assets expected to become cash or be consumed:Within one year or one operating cycle, whichever is longer.

          

  104. Assets acquired in a lump-sum purchase are valued based on:A - L - OE = 0.

          

  105. Revenue should not be recognized until:The earnings process is complete and collection is reasonably assured.

          

  106. Which of the following is not an identified valuation technique in GAAP regarding fair value measurement?Cost-benefit approach.

          

  107. The final paragraph of the audit report:Provides the auditor's opinion on the effectiveness of internal control.

          

  108. Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively.Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of:The fair value of the equipment surrendered exceeds the book value of the equipment given up.

          

  109. Examples of internal transactions include all of the following except:Paying wages to company employees.

          

  110. When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:Supplies

          

  111. Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2013 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2013 fiscal year. Sale of the product began in 2012. What amount of the above expenditures would Cromartie expense in its 2013 income statement?An increase in other comprehensive income.

          

  112. Surefeet Corporation changed its inventory valuation method. Which characteristic is jeopardized by this change?Verifiability.

          

  113. Adjusting entries are primarily needed for:Accrual accounting.

          

  114. The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:Plus net income, minus dividends.

          

  115. According to International Financial Reporting Standards, the level of testing for goodwill impairment is the:Cash-generating unit.

          

  116. Enhancing qualitative characteristics of accounting information include:Comparability and timeliness.

          

  117. The depreciable base for an asset is:The excess of its cost over residual value.

          

  118. Advocates of accelerated depreciation methods argue that their use tends to level out the total cost of ownership of an asset over its benefit period if one considers both depreciation and repair and maintenance costs.True

          

  119. The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:A credit to liability.

          

  120. Dreamworld's capitalized interest in 2013 was:The greater of the percentage-of-revenue method or the straight-line method.

          

  121. Biological assets are valued at fair value less estimated costs to sell under International Financial Reporting Standards.Natural resources.

          

  122. In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?300,000

          

  123. Land was acquired in 2013 for a future building site at a cost of $40,000. The assessed valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. The land should be reported in the financial statements a$40,000

          

  124. On January 1, 2013, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2014. Expenditures on the project were as follows:Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2013. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2013 and 2014.Average accumulated expenditures for 2013 was:300,000

          

  125. Goodwill is:Increases in equity from peripheral transactions of an entity.

          

  126. The replacement of a major component increased the productive capacity of production equipment from 10 units per hour to 18 units per hour. The expenditure should be debited to:Equipment

          

  127. Total depreciation is the same over the life of an asset regardless of the method of depreciation used.True

          

  128. Cost of goods sold is:The excess of the fair value of a business over the fair value of all net identifiable assets.

          

  129. A sale on account would be recorded by:Debiting assets.

          

  130. Gains are:Could be a product cost or a period cost depending on the use of the asset.

          

  131. According to International Financial Reporting Standards, the revaluation of equipment when fair value exceeds book value, results in:An increase in other comprehensive income.

          

  132. Assets do not include:Land held for a possible future plant site.

          

  133. An example of fraud would be:Cannot determine its classification without additional information.

          

  134. The FASB's conceptual framework's qualitative characteristics of accounting information include:Comparability and timeliness.

          

  135. Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?$1,800,000.

          

  136. Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?$1,800,000.

          

  137. Below is information relative to an exchange of equipment by Pensacola Inc. Assume the exchange has In Case B, Pensacola would record a gain/(loss) of:
    substance.
    Depreciation on a research and development facility.

          

  138. Four different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is:Income tax expense.

          

  139. Notes payable:Cannot determine its classification without additional information.

          

  140. Recording revenue that is earned, but not yet collected, is an example of:Natural resources.

          

  141. Enhancing qualitative characteristics of accounting information include each of the following except:Debiting an expense.

          

  142. Which of the following accounts are closed at the end of the accounting period?Accrued income taxes payable.

          

  143. Once selected for existing assets, a company must consistently use the same method of depreciation for all subsequent fixed asset acquisitions.False

          

  144. Phase A of the new conceptual framework focuses on:Objective and qualitative characteristics.

          

  145. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2013:What amount should be included in the current liability section of Janson's December 31, 2013, balance sheet?$61,000.

          

  146. Interest is eligible to be capitalized as part of an asset's cost, rather than being expensed immediately, when:All of the above are correct.

          

  147. Interest capitalized for 2013 was:$36,000.

          

  148. The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June?Trademark

          

  149. Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is:Accumulated depreciation.

          

  150. Accounting for a change in the estimated service life of equipment:Involves a two-step process for recoverability and measurement.

          

  151. Average accumulated expenditures:Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.

          

  152. An asset that is not expected to be converted to cash or consumed within one year or the operating cycle is:Their relative fair values.

          

  153. A major expenditure increased a truck's life beyond the original estimate of life. GAAP permits the expenditure to be debited to:Accumulated depreciation.

          

  154. Which of the following best demonstrates the full disclosure principle?Disclosure notes to financial statements.

          

  155. An important argument in support of historical cost information is:Verifiability

          

  156. The physical life of a depreciable asset sets the lower limit of its service life.The excess of its cost over residual value.

          

  157. The accounting equation can be stated as:The excess of its cost over residual value.

          

  158. Accruals occur when cash flows:Occur after revenue or expense recognition.

          

  159. The amount of impairment loss is the excess of book value over:Monetary unit.

          

  160. Somerset Leasing received $12,000 for 24 months rent in advance. How should Somerset record this transaction?Debiting an expense.

          

  161. International Financial Reporting Standards require goodwill to be tested for impairment at least annually.True

          

  162. Making insurance payments in advance is an example of:Are the excess of the cash proceeds over the book value of the assets sold.

          

  163. The overriding principle for all depreciation methods is that the method must be:False

          

  164. Cash equivalents would not include:Cash not available for current operations.

          

  165. In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What is the balance in income tax payable at the end of the year?$10,000 credit.

          

  166. An exception that is so serious that even a qualified opinion is not justified would result in:An adverse opinion.

          

  167. Liddy Corp. began constructing a new warehouse for its operations during the current year. In the year Liddy incurred interest of $30,000 on a working capital loan, and interest on a construction loan for the warehouse of $60,000. Interest computed on the average accumulated expenditures for the warehouse construction was $50,000. What amount of interest should Liddy expense for the year?A prospective change from the current year through the remainder of its useful life, using the new estimates.

          

  168. Examples of external transactions include all of the following except:Monetary unit.

          

  169. A change from the straight-line method to the sum-of-years'-digits method of depreciation is handled as:Includes serving as a guide for practitioners when a specific standard does not apply.

          

  170. An example of a contra account is:Accumulated depreciation.

          

  171. Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The concept demonstrated is:Materiality

          

  172. The primary objective of financial accounting information is to provide useful information toCapital providers

          

  173. An exclusive 20-year right to manufacture a product or use a process is a:Copyright

          

  174. In computing capitalized interest, average accumulated expenditures:Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.

          

  175. Permanent accounts would not include:Debt instruments with maturity dates of less than three months from the date of the purchase.

          

  176. Research and development (R&D) costs:Generally pertain to activities that occur prior to the start of production.

          

  177. Accounting for impairment losses:Occur after revenue or expense recognition.

          

  178. Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year?Their relative fair values.

          

  179. Research and development costs for projects other than software development should be:Maintenance costs during the first 30 days of use.

          

  180. The enhancing qualitative characteristic of understandability means that information should be understood by:Those who have a reasonable understanding of business and economic activities

          

  181. Which of the following groups is not among the external users for whom financial statements are prepared?It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows

          

  182. Component depreciation, required under International Financial Reporting Standards, is allowed but rarely used by U.S. companies.Making decisions.

          

  183. Interest is not capitalized for:$36,000.

          

  184. Productive assets that are physically consumed in operations are:Fair value.

          

  185. On July 1, 2013, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2013 as follows:What would be the balance in the land account as of December 31, 2013?$477,000.

          

  186. Depreciation:Could be a product cost or a period cost depending on the use of the asset.

          

  187. In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?Straight-line.

          

  188. Which of the following is typically characterized as a principle, rather than an assumption?Disclosure notes to financial statements.

          

  189. On December 31, 2013, the end of Larry's Used Cars' first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2013 balance sheet will be valued at:52,400

          

  190. Research and development expense for a given period includes:Depreciation on a research and development facility.

          

  191. Incurring an expense for advertising on account would be recorded by:Debiting assets.

          

  192. The usual difference between accounts payable and notes payable is:Debiting assets.

          

  193. Gains on the cash sales of fixed assets:All of the above are correct.

          

  194. The three factors in cost allocation of a depreciable asset are service life, allocation base, and allocation method.Is handled prospectively.

          

  195. Eve's Apples opened business on January 1, 2013, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2013?Interest expense 120
    Interest payable 120

          

  196. Under IFRS, the conceptual frameworkEmphasizes the overarching concept of the financial statements providing a "true and fair representation" of the company.