Conceptual Framework Reivew Flashcards
Interim Financial Statements emphasize:
Timeliness over faithful representation.
Is financial information prepared and presented in accordance with an applicable financial reporting framework that comprises either a complete or condensed set of financial statements covering a period or periods less than one full year or covering a 12 month period ending on a date other than the entity’s fiscal year end.
Cash Basis method of accounting
Not allowable method under GAAP unless no material difference from accrual method.
Cash Basis financial statements sometimes provided for investors or creditors.
Cash basis accounting results in a measure similar to net income called net operating cash flow.
Cost Recovery Method
AKA depreciation is a deduction from gross income for AGI allowed for wear, tear, deterioration and normal obsolescence of property used in trade or business or held for income production.
Acceptable depreciation methods include the following:
Straight Line
Sum of Years Digits
Declining Balance
Other Accelerated methods
Stockholders’ Equity
Is the total residual ownership interest in the corporation: net assets and total assets in excess of total liabilities. Source of equity should be specified and segregated:
Contributed Capital (Paid In Capital):
Capital Stock at par - common, preferred less t-stock
Other Contributed Capital - excess of par, donated capital, - contributed capital from t-stock
Retained Earnings - appropriated and unappropriated
Unrealized Capital
Less Treasury Stock under cost method
Cash Paid to Suppliers Formula
COGS
(Beginning - Ending Inventory)
+ Decrease in Accounts Payable (Beginning - Ending)
= Cash Paid to Suppliers
Cost of Goods Sold
Is all costs that were included in the value of the units finished product sold during the period
Beginning Finished Goods Inventory + Cost of Goods Manufactured = Cost of Goods Available for Sale - Ending Finished Goods Inventory = Cost of Goods Sold.
Sale of Used Equipment for cash be reported in statement of cash flows using indirect method
Cash proceeds from a sale of used equipment would be treated as a cash inflow from investing activities. Since these cash proceeds include both carrying value of the equipment and the fain from the sale, this gain would need to be deducted from income in order to avoid double counting.
Investing Activities definition
is one of the three categories of cash flows in the statement of cash flows. The category includes all transactions related to the making or collecting of loans and the acquiring and disposing of debt; equity instruments; property, plant and equipment or a business unit.
Comprehensive Income
defined in the FASB conceptual framework as change in equity (assets - liabilities) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
How should the amortization of bond discount on long term debt be reported in a statement of cash flows prepared using the indirect method?
Interest paid would be an expense included in the determination of net income, therefore a cash outflow from operating activities. Amortization of a discount is non-cash interest expense. Net income must be increased by non-cash expenses that did not result from a cash outflow.
Consolidated financial statements
A company that controls another company must prepare consolidated financial statements.
Generally Accepted Accounting Principles
Are the basic concepts underlying financial accounting and reporting that have substantial authoritative support. It includes pronouncements of other authoritative bodies such as APB, GASB, SEC, AICPA and FASB Accounting Standards Codification.
