(1) Conceptual Framework and Financial Reporting Flashcards
Define replacement cost
The amount of cash or equivalent that would be paid to acquire or replace an asset currently.
Effect in Financial Statements from changing in accounting principle
Solution: retained earnings at the beginning of the period of change (LESS) what retained earnings would have been if the change was applied to all the effected areas.
When errors are found in the FS’s
Restatement of prior periods is required
Depreciation expense entre
DR: Depreciation expense
CR: Accumulated Depreciation
J/E to record when assets are fully depreciated and written off
DR: Accumulated Depreciation
CR: Asset (which is being written off)
Journal entry to record revenues that have not been performed
DR: A/R
CR: Deferred Revenue
Journal entry to record revenues that were previously recognized
DR: Deferred Revenue
CR: REvenue
Journal entry to record revenue related to services or products not given in exchanged
DR: Cash or A/R
CR: Unearned Rev
Recognize Rev over time (output method)
Sale of goods = Newspars
Recognize Rev over time (input method)
Sale of services = CPA Firm
Percentage of completion (IFRS and GAAP) formula
- Total contract price - Estimated TOTAL cost = Gross profit
- Total const to date / Estimated TOTAL cost of contract = Gross profit Percentage
- Step 1 X Step 2= Profit to date
- Profit to date at Year end - Profit to date at beginning of period = Current year to date gross profit
Comprehensive income
Represente all changes is stockholders equity that come from non-owner sources.
Formula: NI + Other comprehensive income
Other comprehensive income definition and formula
OCI: rev, exp, gains , losses that are included in comprehensive income but excluded from net income.
Mnemonic (PUFFER) (P)ension Adjustments (U)nrealized Gains and Losses (available-for-sale debt securities) (F)oreign currency items (E)ffective portion of cash flow hedges (R)evaluation surplus
Journal entry for an accrued expense
DR: Expense
CR: Accrued Expense
(Note: the credit accrued expense is categorized as an accounts payable on the BS)
According to FASB and IASB conceptual frameworks, useful information must show the fundamental qualitative characteristics of:
Faithful representation and relevance
Held for Sale Criteria
- Management commits to plan to sell the component
- The component is available for immediate sale in its present condition
- An active program to locate a buyer has been initiated
- The sale of the component is probable and the is expected to be completed within a year
- The sale of the component is being actively marketed
- Actions required to complete the sale make it unlikely that significant changes to the plan will be made.
Effect of changes in accounting estimates
Accounting estimates require for current and future year changes to be made.
How should items that are both unusual and infrequent should be reported?
Under US GAAP, items that are both unusual and infrequent are reported as a separate component of income from continuing operations.
Multiple step income statement sections:
- Gross Margin
- Income(loss) from operations
- Other revenues and gains
- Other expenses and Losses
- Income before unusual items and income tax
- Income before income tax
- Net income (or income from continuing operations)
A change in estimated useful life of a depreciable asset is treated as:
a change in estimate and its handled prospectively. No adjustment in RE is necessary.
Devinde relevance and materiality under FASB and IASB
Relevance is a fundamental qualitative characteristic, and materiality is a component of relevance
Revenue Recognition mnemonic
ISTAR
(I)dentify contract with customer
(S)separate performance obligation identified
(T)ransaction price determined
(A)llocate transaction price to separate performance obligation
(R)ecognize revenue when or as the entity satisfies the performance obligation
How are incremental costs recognized? These expenses are those that would have not been incurred if there wasnt a contract.
These costs are recognized as assets.
According to FASB and IASB, predective value is an engrdient of
Relevance
