Ch 2 Flashcards
What is the basic objective of general purpose financial reporting?
The basic objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity.
What is the first level of the framework for financial reporting?
The first level of the framework for financial reporting is the objective of financial reporting.
What is the second level of the framework for financial reporting?
The second level of the framework for financial reporting consists of qualitative characteristics of accounting information and elements of financial statements.
What is the third level of the framework for a financial reporting?
The third level of the framework for financial reporting consists of assumptions principles and the constraint.
Name the two fundamental qualities of level two of the framework for financial reporting.
Relevance and faithful representation
Name the 3 ingredients of the fundamental quality relevance
- Predictive value
- Confirmatory value
- Materiality
Name the 3 ingredients of the fundamental quality faithful representation
- Completeness
- Neutrality
- Free from error
Name the 4 enhancing qualities of the qualitative characteristics of level two of the framework for financial reporting.
- Comparability
- Verifiability
- Timeliness
- Understandability
What are the 10 elements of financial statements from level 2 of the framework for financial reporting?
- Assets
- Liabilities
- Equity
- Investments by owners
- Distributions to owners
- Comprehensive income
- Revenues
- Expenses
- Gaines
- Losses
What are the 4 basic assumptions of level III of the conceptual framework for financial reporting?
- Economic entity assumption
- Going concern assumption
- Monetary unit assumption
- Periodicity assumption
Name the basic principles from level three of the conceptual framework for financial reporting.
- Measurement principle
- Revenue recognition principle
- Expense recognition principle
- Full disclosure principle
What is the constraint from level 3 of the framework for financial reporting?
Cost constraint
Name the five steps of revenue recognition.
Step 1: Identify the contract with the customer
Step 2: Identify the separate performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the separate performance obligations
Step 5: Recognize revenue when each performance obligation is satisfied
What are the 2 types of costs for the expense recognition principle?
- Product costs. They have a direct relationship between cost and revenue, and are recognized in the same period of revenue they produced.
- Period costs. No direct relationship between cost and revenue, and are expensed as incurred.
Name the 3 levels of the fair value hierarchy when using fair value as the revenue recognition method.
Level 1: Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or through corroboration with observable data.
Level 3: Unobservable inputs - for example, the company’s own data or assumptions.
