1 - Conceptual Framework, Standard-Setting, and Financial Reporting Flashcards
valuation accounts
increase or decrease the carrying value of assets are part of the related asset and are not assets, or liabilities. ex. adjunct(increase)-premium on bond contra(decrease)-discount on bond, deprc.
relevance
predictive value, confirmatory value, or both
faithful representation—reliability/SFAC 8.3
complete, neutral, and free from error
interim income statement, income tax rate
use estimated effective annual rate against entire year’s income before income tax expense
fundamental qualitative characteristics of accounting information
relevance and faithful representation
-interim financial reporting FASB ASC 270-10-45-1
each period viewed as an integral part of an annual period
cost-benefit
FASB assesses whether the benefits of reporting particular information are likely to justify the costs incurred to provide and use that information
enhancing qualitative characteristics
comparability, verifiability, timeliness, and understandability
Direct cash flow
add cash receipts from sales, interest, dividends, and the sale of equity securities
deduct cash payments for purchases, operating expenses, interest, income taxes, and the purchase of equity securities
cash paid for COGS- direct cashflow
COGS add an increase in inventory deduct a decrease in inventory add a decrease in accounts payable deduct an increase in accounts payable
comprehensive income
change in equity(net assets) from transactions and other events from non owner sources - all changes in equity except investments by owners and distributions TO owner
discontinued operations
includes all previously unrecognized gains or losses from the sale of the discontinued component and the results of operations for the discontinued component during the reporting period— reported net of tax
historical cost principle
assets recorded and carried at their historical acquisition cost
current ratio
current assets/ current liabilities:
cash, ar, inventory
unrealized changes in fair value between periods
reported in other comprehensive income, gains and losses reported on income statement when realized
notes to financial statements
significant accounting principles used
alternative measures for assets and liabilities
information about long-term obligations(when due, interest rate, restrictive policies)
inventory measurement method used(lifo,fifo,etc)
revenue recognition policies
discussion of contingencies, claims, and assessments
financing activities
Issuance/repayment of debt
Issuance/repurchase of common or preferred stock
resale of treasury stock(+)
payment of dividends(-)
SEC rulemaking
concept release
rule proposal
rule adoption
impairment loss
only recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair vale
definition of a gain
increase in equity form 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 form revenues or investments by owners
reliability
information about an item must be representationally faithful, verifiable, and neutral
SFAC 4
to provide a BASIS for establishing detailed accounting and reporting standards for nonbusiness entities
accrual
economic events that have already occurred, but have not yet been settled
deferral
items that have been paid for in advance, but their associated underlying economic event has not occurred yet
inventory losses- interim
if losses are recovered in subsequent period, gain recognized but by the amount of the previously booked loss.
GASB
GOVERMENT not-for-profit organizations follow the SLG GAAP hierarchy in determining applicable GAAP
current cost
report assets at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently
residual interest
net assets of a nongovernmental not-for-profit—assets minus liabilities
capital maintenance concept
the recovery of cost; separation of return on capital from return of capital
financial capital concept
the effects of price changes on assets held and liabilities owed are recognized as “holding gains and losses” and included in return on capital
physical capital concept
the effect on price changes are recognized as “ capital maintenance adjustments” as a separate element of equity and would not be included in return on capital
asset - essential characteristics
- probable future benefit
- particular entity can obtain the benefit and control others’ access to it
- the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred
objectivity
states that the economic activity that underlies financial statements must be substantive in fact and presented without bias
continuity or going concern
states that an entity is assumed to have a life that is indefinite or at least sufficiently long for it to accomplish its objectives and fulfill its legal obligations
exposure draft, aka
proposed accounting standards update
SFAC 4 - nonbusiness organizations indicator of performance
- information about the nature and relationship between inflows and outflows of resources
- information about service efforts and accomplishments
IFRS- Interest expense
Finance Cost
IFRS - noncash transactions
reported in notes to cash flow and not on face
deferred tax liability/asset
classified as concurrent
accumulated other comprehensive income
reported as part of equity on the balance sheet/statement of financial position–can increase or decrease total S/E
articulation
means financial statements are fundamentally interrelated
single step income statement
net income=(revenues + gains) - (expenses + losses)
component of an entity
- segment
- reporting unit
- or asset group(not a part of a line of business)
- whose operations and cash flows are clearly distinguished from the rest of the entity, operationally as well as for financial reporting purposes
variable interest entity
a legal entity subject to consolidation according to the provisions of the “Variable Interest Entities” subsections of FASB ASC 910-10
multi-step income statement
- shows calc for gross profit in order to show efficiency in use of labor and supplies
- shows operating income vs. non-operating items
diluting securities
stock options or warrants
convertible preferred stock
convertible bonds
contingent shares - shares will be issued if a conditions is met
financials of defined contrib. retirement plan
net assets available for benefits of the plan
changes in net assets available for benefits
NFP - supporting activities
- )management and general
2. )fundraising
operating segments
- )engage in business activity result revenues and expenses
- ) regularly reviewed by chief oper. officer
- )discrete financial info. is available
special purpose frameworks
2160.01
cash basis tax(income) basis regulatory basis contractual basis other basis
impairment
carrying amount exceeds undiscounted future cash flows
reportable segments
revenue test
profitability test
asset test
inventory turnover
COGS/ average inventory
AR turnover
net sales/average AR
Markup to Margin
=markup/(1+markup)
LCNRV—FIFO and Weighted Average
replacement cost(market)- what you repurchase for NRV-what can you sell it for minus costs to move
perpetual vs periodic
perpetual - takes sales out of inventory as they happen
periodic - wait until the end of the period
supplemental disclosures to the Cash Flows
income tax paid
interest paid
conversion of debt to equity
SFAC 8 limitations related to disclosure requirements
cost constraint
relevance
potential adverse consequences
future-oriented information
LCM — LIFO and Retail Inventory
replacement cost
ceiling - NRV
Floor- NRV-Profit Margin
—-compare against original cost
Bonus % of NI after NI-Bonus
B=%ofSalesBonus (NI-Bonus)
Times Interest Earned
EBIT/ Interest Payments
Debt - - Equity
Total Liabilities/ Shareholders Equity
Long-term debt to Capitalization
Long Term Debt/ LT Debt+Preferred Stk+ Common Stk
Debt Service Coverage
Net Operating Income/ Total Debt Service
