Chap 14 Flashcards
Separate Economic Entity Assumption
A part of the FASB’s conceptual framework; allows for financial statement users to assume that a business is separate from its owners and have no co-mingling of funds, assets or debits.
Conceptual Framework
a basic framework developed by the FASB to provide conceptual guidelines for financial statements. The most important features are statements of qualitative features of statements, basic assumptions underlying statements, basic accounting principles, and modifying constraints.
Conservatism
the concept that revenue and assets should be understated rather than overstated if GAAP allows alternatives. Similarly, expenses and liabilities should be overstated rather than understated.
Cost-Benefit Test
if accounting concepts suggest a particular accounting treatment for an item, but it appears that the theoretical correct treatment would require an unreasonable amount of work, the accountant may analyze the benefits and costs of the preferred treatment to see if the benefit gained from its adoption is justified by the cost.
Full Disclosure Principle
the requirement that all information that might affect the user’s interpretation of the profitability and financial condition of a business be disclosed in the financial statements or in notes to the statements.
Going Concern Assumption
the assumption that a firm will continue to operate indefinitely.
Historical Costs Basis Principle
the principle that requires assets and services to be recorded at their cost at the time they are acquired and that, generally, long-term assets remain at historical costs in the asset accounts.
Industry Practice Constraint
in a few limited cases, usual operating characteristics of an industry, usually based on risk, for which special accounting principles and procedures have been developed. These may not conform complete with GAAP for other industries.
Matching Principle
the concept that revenue and the costs incurred in eating the revenue should be matched in the appropriate accounting periods.
Materiality Constraint
the significance of an item in relation to a particular situation or set of facts
Monetary Unit Assumption
it is assumed that only those items and events that can be measured in monetary terms are included in financial statements. An inherent part of this assumption is that the monetary unit is stable. Thus, assets purchased one year my be combined in the accounts with those purchased in other years, even though the dollars used in each year actually may have different purchasing power.
Neutrality Concept
the concept that information in financial statements cannot be selected or presenting in a way to favor one set of interested parties over another.
Periodicity of Income Assumption
the concept that economic activities of an entity can be divided logically and identified with specific time periods, such as the year or quarter.
Private Sector
this is the nongovernmental sector of society; in an accounting context, it is the business sector, which is represented in developing accounting principle by the Financial Accounting Standards Board.
Public Sector
the government sector, which is represented in developing accounting principles by the SEC (Securities and Exchange Commission)
