Class 02. Flashcards
concept framework + why it matters
what is the objective and its goal?
it’s level 1 of the conceptual framework and purpose of accounting—ie investors making decisions about lending resources
what is relevance and its goal?
it’s level 2 of the conceptual framework and comprised of: predictive value, confirmatory value and materiality
what is faithful representation and its goal?
it’s level 2 of the conceptual framework and comprised of: completeness, neutrality and error-free
what is predictive value?
relevant planning metrics for predicting the future
what is confirmatory value?
relevant confirmation of past events
what is materiality?
relevant information that confirms your decision
what are the enhancing qualities of relevant information?
comparability (must compare to similar businesses) + verifiability (3rd party can verify)
what is completeness?
representation that’s not cherry picked
what is neutrality?
representation that’s unbiased
what is error-free?
representation that’s correct
what are the enhancing qualities of faithful representation?
timely + understandable
what are concepts statement no. 6?
level 2 of the conceptual framework, measure a business’ health & must be reported
what are basic elements that measure a business’ health?
moment in time (A.L.E) & period of time (revenue, expenses, gains, losses, investments, shareholders)
what are assumptions?
it’s level 3 of the conceptual framework that must be assumed and comprised of: economic entity, going concern, monetary unit and periodicity
what is economic entity?
business + owner separate
what is going concern?
company will last long (if bankcruptcy assumed, cannot use GAAP)
what is monetary unit?
assume $1USD will remain stable for years
what is periodicity?
3 quarterly + 1 annual report required
what are principles?
it’s level 3 of the conceptual framework and comprised of: measurement principle, revenue recognition, expense recognition and full disclosure
what is measurement principle?
historical (based on acquisition costs) + fair (market) value (amount you’d receive if sold)
what is revenue recognition?
revenue incurred when transaction satisfied (ie. shipping)
what is expense recognition?
follows the revenue incurred
what is full disclosure?
transparency + anything the user should know
what are constraints?
it’s level 3 of the conceptual framework and comprised of: cost and industry practice
what is cost?
(!) constraint cost of exposing info > benefit—exempt if too expensive (ESG exempt)
what is industry practice?
constraint exemptions within certain industries
why the concept framework?
provides framework for new problems w/out a GAAP solution + affirms user confidence in accounting practices
Class 02. Ex. 1.9
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)
Class 02. Ex. 1.11
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
