chapter 1-2: Int. I Fin Acc

Governed by GAAP

Financial Statements

Footnotes to Financial Statements

Not Governed by GAAP

Letter to owners

Managements discussion and analysis

Auditors report

Management report

Financial Accounting

process of identifying, measuring, and communicating financial information about an economic entity to various user groups within the legal, economic, political, and social environment

Relevant

Fundamental characteristic

Faithful Representation

Fundamental characteristic

Relevant fundamental characteristics:

Predictive value

Confirmatory value

Materiality

Materiality

Important enough to effect the user’s decision

Faithful representation fundamental characteristics:

Complete

Neutral

Free from error

Enhancing characteristics:

Comparability

Verifiability

Timeliness

Understandability

Understandability

Understandable to REASONABLY INFORMED financial statement users

Point In Time elements appear on the

Balance sheet

Period Of Time elements appear on the

Income statement

Point in Time elements include:

Assets

Liabilities

Equity

Period of Time elements include:

Investments by owners

Distributions to owners

Revenues

Gains

Losses

Expenses

Comprehensive income

5 bases of measurement for GAAP:

Historical Cost

Current Cost

Current Market Value

Net Realizable Value

Present Value of Future Cash Flows

Historical Cost

What did we pay for it?

Current Cost

What would it cost now?

Current Market Value

What could we sell it for now?

Net Realizable Value

What will we actually get?

Present Value of Future Cash Flows

What are future dollars worth today?