Key Financial Reporting Concepts: IFRS and GAAP Principles

Predictive value

Information is useful in predicting the future.

Relevance

Pertinent to the decision at hand.

Timeliness

Information is available prior to the decision.

Distribution to owners

Decreases in equity resulting from transfers to owners.

Confirmatory value

Information confirms expectations.

Understandability

Users understand the information in the context of the decision being made.

Gain

Increases in equity not resulting from revenues or investments by owners.

Faithful representation

Agreement between a measure and the phenomenon it purports to represent.

Comprehensive income

The change in equity from nonowner transactions.

Materiality

Concerns the relative size of an item and its effect on decisions.

Comparability

Important for making interfirm comparisons.

Neutrality

The absence of bias.

Recognition

The process of admitting information into financial statements.

Consistency

Applying the same accounting practices over time.

Cost effectiveness

Requires consideration of the costs and value of information.

Verifiability

Implies consensus among different measurers.

Source documents

Used to identify and process external transactions.

Transaction analysis

Determine the dual effect on the accounting equation.

Journal

Record of the dual effect of a transaction in debit/credit form.

Posting

Transferring debits and credits from the journal to the ledger.

Unadjusted trial balance

List of accounts and their balances before recording adjusting entries.

Adjusting entries

Updates to account balances recorded at the end of a reporting period.

Adjusted trial balance

List of accounts and their balances after recording adjusting entries.

Financial statements

Primary means of disseminating information to external decision makers.

Closing entries

Used to zero out the temporary accounts.

Post-closing trial balance

List of accounts and their balances after recording closing entries.