Conceptual Framework Flashcards
Cash Basis
revenue recognized when earned, expenses recognized when paid, Fixed assets are expensed and not capitalized.
Tax Basis
Revenues and Expenses are recognized in the same period and amount as they are when preparing the tax return.
Private Company Council PCC
Evaluate whether nonpublic entities should be exempt from GAAP principles
Primary Qualitative Characteristics
Relevance and Faithful Representation
Relevance
Capable of making a difference in a user’s decision making process (Roger is PC)
Predictive Value
Confirmatory Value
or if Both-also Materiality
Faithful Representation
Roger is Never on the FENCe
Information depicts what it’s supposed to
Free from Error
Neutral
Completeness
Enhancing Qualitative Characteristics
CUT like a V
C-Compatibility-same principles as similar businesses
U-Understandability-same methods in different periods
T-Timeliness-info is available when it’s useful
V-Verifiability-a different person would agree with info
Cost Benefit (Constraint)
Overrides the usefulness on the information presented
Cost of obtaining the info shouldn’t outweigh the benefit
Full Set of Financials
Balance Sheet (Stmt of Position) Income Statement (Stmt of Earnings and Income) Stmt of Cash Flows Stmt of changes in owners Equity
10 Key Elements of the Financials
Assets,liabilities, equity, investments by owners, distributions to owners, comprehensive income, revenue, expenses, gains and losses.
Assets
resource that has a future benefit that can be obtained
Liabilities
obligation that needs to use an asset
Equity (Net Assets)
assets left over after deducting liabilities
Contributions to owners
Distributions to owners
Comprehensive Income
Comprehensive Income
all changes in equity other that owner sourced transactions-these effect comprehensive income but not net income
DENT (Comprehensive Income)
D-Derivative Cash Flow Hedges
E-Excess adjustment of pension PBO and FV of plan assets
N-Net unrealized gains and losses on available for sale securities
T-Translation adjustments for foreign currency
Recognize a financial statement element
meets the definition of an element(asset/liabilitiy/rev/gain etc)
can be measured in monetary terms
item is relevant and has faithful representation (useful)
Measure in Monetary Terms
Historical Cost-amount you paid for it PPE
Replacement cost- Inventory
FMV-cost between market participants
NRV- amount expected to be converted into (AR)
PV-discontinued cash flows due to the time value of money
Required to be measured at FV
Investments in debt securities (trading securities or available for sale)
Investments in equity securities-except for those under the equity method
Derivatives
Impairment losses
Fair Value Election
Allows you to measure things at fv and other similar items not at FV, election is permanent, elected when instrument is acquired or at another “election date”
Unrealized gains/losses are reported in income
cash=face amount
investment=market value
accounts receivable=NRV
inventory=NRV
3 valuation techniques
MIC
Market Approach-use data of transactions of identical assets
Income Approach-analyze future amounts in the form of revenue,cost savings, earnings
Cost Approach-cost to be incurred to replace the benefit derived from an asset
3 levels of inputs
Level 1- observable data from actual market transactions
Level 2-identical data but not from an active market or not identical assets
Level 3-unobservable data mostly management decisions
Cash Flow use in FV Measurement
Traditional Approach-the most likely amount
Expected-weighted average of different possibilities
Revenue and Expense Recognition Accrual method
Revenues-recognized in the period earned
Expenses-recognized in period incurred
Revenue and Gains are Recognized when
Earned-earnings process is completed
Realized-collect the cash
Sales that have right of return
if return is Reasonable Estimable-revenue is recognized in the period of the sale with an allowance for returns
Return is not reasonably estimable- revenue is not recognized until the right of return has expired
Expenses or Losses are recognized when
Incurred-economic benefit is consumed or used up or assets lose future benefit as they are used
Financial Stmt Disclosures
Nature of Operations
Use of Estimates
Certain Significant Estimates
Vulnerability with certain business concentrations
Recognition
you booked it/reported it in the FS
Realization
Sold something got the money
Transaction costs when determining most advantageous market
Considered when deciding what market is the most advantageous but ignored when you measure the asset at FMV
