Intermediate accounting unit 1

Financial Accounting Standards Board FASB

the U.S. organization established to improve standards of financial reporting for the guidance and education of the public, which includes issuers, auditors, and users of the financial statements.

American Institute of Certified Public Accountants: AICPA

The national professional organization of practicing certified public accountants.

Generally accepted accounting principles GAAP

the common set of standards and protocols either established by an authoritative accounting rule-making body or accepted as appropriate because of its universal application in practice.

Securities and Exchange Commission SEC

is a federal agency that administers the Securities Act of 1934 and other acts. Most companies that issue securities to the public or are listed on the stock exchanges are required to file audited GAAP financial statements with the SEC.

International Accounting Standards Board IASB

the international organization established to improve standards of financial reporting for the guidance and education of the public, which includes issuers, auditors, and users of the financial statements. Their statements apply to many countries outside the United States.

Public/private partnership:

reflects the SEC’s support for the FASB by indicating that financial statements conforming to standards by the FASB are presumed to have authoritative support.

Codification

provides in one place all the authoritative accounting literature related to a topic.

Statements of Financial Accounting Concepts SFAC

the series that sets forth fundamental objectives and concepts that the FASB

uses in developing standards of financial accounting and reporting.

What is the purpose of information presented in the

notes to the financial statements?

To provide disclosure required by generally

accepted accounting principles.

Entity Perspective

Companies viewed as separate and distinct from their owners

Decision-Usefulness

Investors are interested in assessing the company’s

Financial Accounting Foundation (FAF)

Purpose: To select members of the FASB and their

Advisory Councils, fund their activities, and exercise

general oversight.

Financial Accounting Standards Advisory

Council (FASAC)

Purpose: To consult on major policy issues, technical

issues, project priorities, and selection and organization of task forces.

American Institute of Certified Public Accountants

(AICPA)

National professional organization

Established ISAB

The first step taken in the establishment of a typical

FASB statement is

Topics are identified and placed on the

board’s agenda.

Predictive Value

Information has predictive value if it helps users form their own expectations.

Confirmatory value

Accounting information has confirmatory value if it helps users confirm or

correct prior expectations.

Materiality value

A company-specific aspect of relevance

relavence

Materiality value, Confirmatory value, and Predictive Value

Faithful representation

Neutrality, Completeness,and Free from Error

Free from Error

Information that is free from error will be a more accurate representation of a financial item.

Neutrality

Company cannot select information to

favor one set of interested parties over another.

Completeness

All information that is necessary for faithful representation is provided.

Assets

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. (resource that adds future benefit (cash))

Liabilities.

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. ( a future obligation for a company)

Equity.

Residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest.

Investments by owners.

Increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests (or equity) in it. Assets are most commonly received as investments by owners, but that which is received may also include services or satisfaction or conversion of liabilities of the enterprise.

Distributions to owners.

Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. Distributions to owners decrease ownership interests (or equity) in an enterprise

Comprehensive income

Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by

owners and distributions to owners.

Revenues.

Inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

Expenses.

Outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

Gains.

Increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners.

Losses

Decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from ccaexpenses or distributions to owners.

assumptions in accounting

economic entity, going concern, monetary unit, periodicity

Measurement Principle

historical cost or fair value

Revenue Recognition Principle

revenue must be recognized when the performance obligation is satisfied

Expense Recognition Principle

expenses must follow the revenues

Full Disclosure Principle

recognizes that the nature and amount of information included in financial reports reflects a series of judgmental trade-offs.

Going concern assumption

Belief that the company will continue for the foreseeable future.

Full disclosure principle

The reporting of all information that would make a difference to

financial statement users.

Periodicity assumption

The practice of preparing financial statements at regular intervals.

Historical cost principle

A belief that items should be reported on the balance sheet at the price

that was paid to acquire the item.

Economic entity assumption

Tracing accounting events to companies

Monetary unit assumption

Reporting only those things that can be measured in dollars.

Expense recognition principle

Recognize wages when the work contributes to revenue.

Revenue recognition principle

Recognize sale of goods when performance obligation satisfied