Chapter 5 to Chapter 6 Flashcards
What are the elements directly related to the measurement of financial position?
Assets
Liabilities
Equity
What are the elements directly related to the measurement of financial performance?
Income
Expense
This is the residual interest in the assets of the entity after deducting all of the liabilities.
Equity
This is defined as a present economic resource controlled by the entity as a result of past events.
Assets
This is a right that has the potential to produce economic benefits.
Economic resource
What are the 3 essential characteristics of an asset?
- It is a right.
- A present economic resource is a right that has a the potential to produce economic benefits.
- It is controlled by the entity.
This is a contract that is equally unperformed which means neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent.
Executory Contracts
This is a present obligation of an entity to transfer an economic resource as a result of past events.
Liability
What are the 3 essential characteristics of a liability?
- The entity has an obligation.
- The obligation is to transfer an economic resource.
- The obligation is present and it results from past events.
This is a duty or responsibility that an entity has no practical ability to avoid.
Obligation
What are the two types of obligations?
Legal and constructive
This obligation is legally enforceable as a consequence of a binding contract or statutory requirement.
Legal obligation
These obligations arise from normal business practice custom and a desire to maintain good business relations or act in an equitable manner.
Constructive obligation
This is defined as increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity holders.
Income
This arises in the course of the ordinary regular activities and is referred to by variety of different names including sales, fees, interest, dividends, royalties, and rent.
Revenue
What is the essence of revenue?
Regularity
These represent other items that meet the definition of income and do not arise in the course of the ordinary regular activities.
Gains
This is the primary source of information about an entity’s financial performance.
Income statement/Profit or loss
This is defined as decreases in assets, or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity holders.
Expense
These do not arise in the course of the ordinary regular activities and include those resulting from disasters.
Losses
This is the process of capturing for inclusion in the financial statements an item that meets the definition of an asset, liability, equity, income, or expense.
Recognition
This is the amount at which an asset, a liability or equity is recognized in the statement of financial position.
Carrying amount
What does it mean to recognize something?
To record in financial statements.
When is income earned?
Point of sale
This principle requires that those costs and expenses incurred in earning a revenue shall be reported in the same period.
Matching principle
What are the 3 applications of matching principle?
- Cause and effect association
- Systematic and rational allocation
- Immediate recognition
Under this application, the expense is recognized when the revenue is already recognized.
Cause and effect association
Under this application, some costs are expensed by simply allocating them over the periods benefited.
Systematic and rational allocation
Under this application, the cost incurred is expensed outright because of uncertainty of future economic benefits or difficulty of reliably associating certain costs with future revenue.
Immediate recognition
This is defined as the removal of all or part of recognized asset or liability from the statement of financial position.
Derecognition
This occurs when an entity loses control of all or part of the asset.
Derecognition of asset
This occurs when the entity no longer has a present obligation for all or part of a liability.
Derecognition of liability
This is defined as quantifying in monetary terms the elements in the financial statements.
Measurement
This is the entry price or entry value to acquire an asset or to incur a liability.
Historical cost or original acquisition cost
What does the current value include?
Fair value
Value in use for asset
Fulfillment value for liability
Current cost
This is the price that would be received to sell an asset in an orderly transaction between market participants at measurement date.
Fair value of asset
This is the price that would be paid to transfer a liability in an orderly transaction between market participants at measurement date.
Fair value of liability
This is the present value of the cash flows that an entity expects to derive from the use of an asset and from the ultimate disposal.
Value in use
This is the present value of cash that an entity expects to transfer in paying or settling a liability.
Fulfillment value
This is the cost of an equivalent asset at the measurement date comprising the consideration paid and transaction cost.
Current cost of an asset
This is the consideration that would be received less any transaction cost at measurement date.
Current cost of liability
