Basic Concepts Flashcards
What does ASC stand for?
Accounting Standards Codification
What are the 5 basic concepts?
Theory, Income Determination, Accruals, Deferrals, and Revenue Recognition
Can be defined as coherent set of hypothetical, conceptual, and pragmatic principles forming a general frame of reference for a field of inquiry
Theory
What are some of the components of the conceptual framework for financial accounting and reporting?
Objectives, qualitative characteristics, elements, recognition, measurement, financial statements, earnings, funds flow, and liquidity
Most basic component of the objective framework
Objectives
Underlie the other phases, are derived from the need of those for whom financial information is intended, and provide a focal point for financial reporting by identifying what types of information are relevant
Objectives
Criteria to be used in choosing and evaluating accounting and reporting policies
Qualitative characteristics
Components from which the financial statements are created. Include assets, liabilities, equity, investments by owners, revenues, expenses, gains, and losses
Elements
Must meet criteria for recognition and posses an attribute which is relevant and can be reliably measured
Elements
Concerned with what info. should be provided, who should provide it, and where it should be displayed
Reporting considerations
Primary users of financial reporting
Investors, lenders, and creditors. Other parties such as Regulators and members of the public not included via SFAC 8
Objectives of financial reporting
1) Info that is useful to all primary users
2) Info about the entity’s economic resources and claims against the reporting entity
3) Changes in an entity’s resources and claims
4) Financial performance reflected by accrual accounting
5) Financial performance reflected by past cash flows
6) Changes in entity’s resources and claimed resulting from financial performance
Establish criteria for selecting and evaluating accounting alternatives which will meet the objectives
Qualitative characteristics
Cost benefit constraint (Persuasive constraint)
If benefits of information do not outweigh costs then the information does not need to be provided
Materiality constraint (Threshold for Recognition)
Any item deemed to be immaterial does not need to be provided
Two fundamental characteristics of accounting information
Relevance and faithful representation
Requires that information be used to predict future outcomes
Predictive value
Requires that information either confirms or changes prior evaluations
Confirmatory value
Should be complete, neutral, and free from error
Faithful representation
Requires that information is presented or depicted in a way that users can understand the item being depicted
Completeness
Requires that the item is being depicted without bias either favorably or unfavorably to users
Neutrality
No errors or omissions are in the information that is provided
Free from error
Enables users to identify and understand similarities and differences between items
Comparability
Refers to the use of the same accounting methods in different periods.
Consistency