Class 02.

Question 1

what is the objective and its goal?

Answer 1

it’s level 1 of the conceptual framework and purpose of accounting—ie investors making decisions about lending resources

Question 2

what is relevance and its goal?

Answer 2

it’s level 2 of the conceptual framework and comprised of: predictive value, confirmatory value and materiality

Question 3

what is faithful representation and its goal?

Answer 3

it’s level 2 of the conceptual framework and comprised of: completeness, neutrality and error-free

Question 4

what is predictive value?

Answer 4

relevant planning metrics for predicting the future

Question 5

what is confirmatory value?

Answer 5

relevant confirmation of past events

Question 6

what is materiality?

Answer 6

relevant information that confirms your decision

Question 7

what are the enhancing qualities of relevant information?

Answer 7

comparability (must compare to similar businesses) + verifiability (3rd party can verify)

Question 8

what is completeness?

Answer 8

representation that’s not cherry picked

Question 9

what is neutrality?

Answer 9

representation that’s unbiased

Question 10

what is error-free?

Answer 10

representation that’s correct

Question 11

what are the enhancing qualities of faithful representation?

Answer 11

timely + understandable

Question 12

what are concepts statement no. 6?

Answer 12

level 2 of the conceptual framework, measure a business’ health & must be reported

Question 13

what are basic elements that measure a business’ health?

Answer 13

moment in time (A.L.E) & period of time (revenue, expenses, gains, losses, investments, shareholders)

Question 14

what are assumptions?

Answer 14

it’s level 3 of the conceptual framework that must be assumed and comprised of: economic entity, going concern, monetary unit and periodicity

Question 15

what is economic entity?

Answer 15

business + owner separate

Question 16

what is going concern?

Answer 16

company will last long (if bankcruptcy assumed, cannot use GAAP)

Question 17

what is monetary unit?

Answer 17

assume $1USD will remain stable for years

Question 18

what is periodicity?

Answer 18

3 quarterly + 1 annual report required

Question 19

what are principles?

Answer 19

it’s level 3 of the conceptual framework and comprised of: measurement principle, revenue recognition, expense recognition and full disclosure

Question 20

what is measurement principle?

Answer 20

historical (based on acquisition costs) + fair (market) value (amount you’d receive if sold)

Question 21

what is revenue recognition?

Answer 21

revenue incurred when transaction satisfied (ie. shipping)

Question 22

what is expense recognition?

Answer 22

follows the revenue incurred

Question 23

what is full disclosure?

Answer 23

transparency + anything the user should know

Question 24

what are constraints?

Answer 24

it’s level 3 of the conceptual framework and comprised of: cost and industry practice

Question 25

what is cost?

Answer 25

(!) constraint cost of exposing info > benefit—exempt if too expensive (ESG exempt)

Question 26

what is industry practice?

Answer 26

constraint exemptions within certain industries

Question 27

why the concept framework?

Answer 27

provides framework for new problems w/out a GAAP solution + affirms user confidence in accounting practices

Question 28

Class 02. Ex. 1.9

Answer 28

A4 B6 C3 D5 E7 F6 G2 H6 I2/3 J7 K1 L3 M4 N3

J—unimportant
M—goodwill is the intangible asset of acquiring a company (ie brand) and the difference = goodwill. (recorded @ time of purchase)

Question 29

Class 02. Ex. 1.11

Answer 29

A—violates economic (any acquired business asset is not an expense but asset)
B—violates historical (inventory recorded at cost) + sales recorded when sold
C—contingent liability recorded if there’s a likelihood + quantifiable
D—inflation irrelevant to journal entry
E—violates expense