Chapter 1 Flashcards
:Financial Statements
Income statement
Balance Sheet
Statement of Shareholders equity
Statement of Cash Flows
Due Process
How FASB makes changes to GAAP
includes public hearings allowing others to discuss what changes they want
Statements of Financial Accounting Concepts (SFACS)
set objectives and fundamentals that will be the basis for development of financial accounting and reporting standards
First level of accounting
Why we do it?
To provide useful information to others such as investors
Second level of accounting
includes qualitative characteristics:
Relevance
Faithful representation
Enhancing qualities
As well as the elements:
assets
liabilities
equity
investment by owners
distribution by owners
Revenues
Expenses
Gains
Losses
Third level of accounting
How implementation
Includes assumptions, principles, and constraints
Fundamental Qualities of accounting
Relevance, Faithful Representation
Relevance
Predictive value - information can help users form their own expectations
Confirmatory Value - Accounting information helps user confirm or correct prior expectations
Materiality - company relative aspect of relevance
Faithful Representation
Completeness - All info necessary is provided
Neutrality - Can’t be biased to one party over the other
Free from Error - Information is accurate
Enhancing Qualities
Comparability - can compare the info with others in the same industry and other time periods
Verifiability - independent measurers can come to the same conclusion
Timeliness - Having information available to decision makers at good times
Understandability - Concise info that is easy to understand
Cost effectiveness
Maintaining high quality statements comes at the cost of salary to accountants, and potentially disclosing secrets
10 elements of financial statements
Revenues, Expenses, Gains, Losses, Assets, Liabilities, Equity, Investment by owners, Distributions to owners and comprehensive income
Assets
Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events
Equity
Residual interest in the assets of an entity that remains after deducting its liabilities
Investments by owners
Increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests in it
Distributions to owners
Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to the owners
Comprehensive income
Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from nonowner sources
Revenue
Inflows or other enhancements of assets of an entity or settlement of its liabilities during a period from central operations
Expenses
Outflows or other using up of assets or incurring of liabilities during a period from central operations
Gains
Increases in equity from 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 from revenues or investments by owners
Losses
Decreases in equity from 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 from revenues or investments by owners
Economic Entity Assumption
Company keeps its activity separate from its owners and other businesses
Going Concern Assumption
Company will last long enough to fulfill objectives and commitments
