Chapter 1 - Conceptual Framework of Financial Accounting Flashcards
Dividend is / is not part of expense/cost.
IS NOT
Revenue/expense occurs in transactions between _____ and ______
Owner; Non-owner
Concept Statements are intended to establish _____ and fundamental ______ that will be the ____for development of accounting/reporting guidance.
Objectives; Concepts; Basis
Objective of financial reporting is to provide _______ about the reporting entity that is _____ to primary users in making decision about investing
Financial information; Useful
What are the 2 FUNDAMENTAL qualitative characteristics? (RF)
- Relevance
2. Faithfulness
Relevant information is capable of making a ________ made by users
Difference in decisions
Relevant information must have what 3 qualities? (PCM)
- Predictive value
- Confirmatory value
- Materiality
Financial information has PREDICTIVE value if it can be used as an ______ employed by users to predict ________
Input to processes; Future outcomes
Financial information has CONFIRMATORY value if it provides ______ about previous evaluations
Feedback (confirms or changes)
Financial information is MATERIAL if ________ could influence decisions that users make on the basis of that information
Omitting/Misstating
What are the 3 qualities of a FAITHFUL representation? (CNF)
- Complete
- Neutral
- Free from error
A complete depiction includes _______ for a user to ________ being depicted, including all necessary descriptions and explanations
All information necessary; Understand the phenomenon
A neutral depiction is NOT ___________, or otherwise manipulated to ___________ that financial will be received favorably/unfavorably by users
Slanted, weighted, emphasized/deemphasized; Increase the probability
Free from error means that there are _________ in the description of the phenomenon, and the process used to produce the information has been applied ______
No errors or omissions; Without errors
What are the 4 ENHANCING qualitative characteristics? (TUCV)
- Timeliness
- Understandability
- Comparability
- Verifiability
Timeliness means ________ to be capable of influencing their decisions
Having information available to decisionmakers in time
Understandability means to __________ information clearly and concisely
Classify, characterize, and present
Comparability means to ______ users to _________ among items. Comparability DOES NOT relate to a _______.
Enable; Identify and understand similarities/differences; Single item (requires at least 2 items)
Verifiability means that ________ could reach consensus that a particular depiction is a ________.
Independent observers; Faithful representation
What are the 4 basic assumptions? (EGMP)
- Economic entity assumption
- Going concern assumption
- Monetary unit assumption
- Periodicity assumption
What are the 4 basic principles of accounting? (REHF)
- Revenue recognition principle
- Expense recognition principle (Matching principle)
- Historical cost principle
- Full disclosure principle
Under “revenue recognition principle,” revenue is generally recognized when _____.
Earned, and realized or realizable
“Earned” means the entity has ________.
Substantially accomplished the required act
“Realized” means goods and services are _______ for ________.
Exchanged; Cash or claims to cash (receivables)