ACTG 343 Exam 1 - R. Moore

Conceptual Framework

[Objective, (Qualitative Characteristics -> Constraints), Recognition Measurement & Disclosure Concepts] -> Elements -> Financial Statements

Objective

Provide Financial Info that is useful to capital providers

Qualitative Characteristics

fundamental qualities and enhancing qualities

Fundamental Qualities

Relevance

-Predictive Value

-Confirmatory Value

- Materiality

Faithful Representation

- Completeness

- Neutrality

- Free from Error

Enhancing Qualitites

Comparability

Understandability

Verifiability

Timeliness

Recognition, Measurement and Disclosure Concepts

Assumptions

- Economic Entity

- Going Concern

- Periodicity

- Monetary Unit

Principles

- Rev Recognition

- Exp Recognition

- Mixed-Attribute Measurement

- Full Disclosure

Elements

1) Assets

2) Liabilities

3) Equity

4) Investments by Owners

5) Distribution to Owners

6) Revenues

7) Expenses

8) Gains

9) Losses

10) Comprehensive Income

Constraints

Cost Effectiveness

Financial Statements

- Balance Sheet

- Income Statement

- Statement of Comprehensive Income

- Statement of Cash Flows

- Statement of Shareholders' Equity

- Related Disclosures

Components of Faithful Representation

Completeness

Neutrality

Free from Error

Components of Relevance

Predictive Value

Confirmatory Value

Materiality

Basic Assumptions Underlying GAAP

- Economic Entity Assumption

- Going Concern Assumption

- Periodicity Assumption

- Monetary Unit Assumption

Economic Entity Assumption

Business is separate from Owners and Other Subsidiaries

Parent Company and its Subsidiaries are

Separate Legal Entities but One Accounting Entity

Going Concern Assumption

Business will continue to operate into foreseeable future

Periodicity Assumption

the life of a business can be divided into artificial time periods for the purpose of reporting financial results

Monetary Unit Assumption

Dollar is a stable unit of measure, so transactions can and should be reported using them

Revenue Recognition Principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Expense Recognition Principle

The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.

Mixed Attribute Measurement

measures assets, liabilities, revenues, expenses, and other elements of the financial statements with the most relevant and faithful measurement available

Full Disclosure Principle

Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.

Recognition

Determines whether an item is reflected in the financial statement

- Relevance

- Reliability

- Measurability

- Definition

Relevance

information makes a difference in decision making

Reliability

the information is

- Representationally Faithful

- Verifiable

- Neutral

Measurability

The item has a relevant attribute that is measurable with sufficient reliability

Definition

the item meets the definition of an element of financial statements

Measurement

choice of a monetary unit and measurement attribute

- Historical Cost

- NRV

- Current Cost

- Present Value

- Fair Value

Historical Cost

the actual amount paid for merchandise or other items bought is recorded

Net Realizable Value (NRV)

estimated selling price of an asset - estimated costs of completing the sale

Current Cost

the cost that would be incurred to purchase or reproduce the asset

Present Value

the amount of money you would need to deposit now in order to have a desired amount in the future

Fair Value

the assumption that the price at which an asset or liability could be sold or transferred would be determined by the forces of supply and demand in the marketplace

Disclosure

All of the info that could affect decisions made by the external users

- parenthetical amounts

- Notes to the Fin Statements

- Supplemental Schedules and Tables

Accounting Cycle Steps

1. Analyze business transactions

2. Journalize the transactions

3. Post to ledger accounts

4. Prepare an UnAdj. trial balance

5. Journalize and post adjusting entries

6. Prepare an adjusted trial balance

7. Prepare financial statements

8. Journalize and post closing entries

9. Prepare a post-closing trial balance