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FAR > F1 - Conceptual Framework and Financial Reporting > Flashcards

F1 - Conceptual Framework and Financial Reporting Flashcards

1
Q

What is the objective of General Purpose Financing Reporting?

A

Provide useful information to primary users that make decisions about providing resources to the entity.

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2
Q

Who are the primary users?

A
  1. Existing and potential investors.

2. Other creditos.

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3
Q

What are the Qualitative Characteristics of useful financial information?

A
  1. Relevance.

2. Faithful representation.

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4
Q

What are the ingredients of Relevance?

A

Info must have:

  1. Predictive value.
  2. Confirming value.
  3. Materiality.
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5
Q

What are the ingredients of Faithful Representation?

A

Info must be:

  1. Complete.
  2. Neutral.
  3. Free from error.
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6
Q

What is ASU?

A

Accounting Standards Update; it is how FASB makes amends and updates to the ASC (Accounting Standards Codification).

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7
Q

What are the Enhancing Qualitative Characteristics?

A
  1. Comparability: When you can compare with other entities, and make sure info it is consistent.
  2. Understandability: Everybody can understand them.
  3. Timeliness: When info is available in time.
  4. Verifiability: When independent auditors can reach to the same conclusion.
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8
Q

What is the Cost Constraint?

A

The benefit of reporting financial information must be higher than the cost of producing the information.

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9
Q

What are the fundamental assumptions and principles?

A
  1. Entity Assumption: It’s a separate corp or division.
  2. Going Concern Assumption: Entity will not close. My heart wil go oooooon!
  3. Monetary Unit Assumption: Money is the key to measure, and this is why financial reporting is to report money.
  4. Periodicity Assumption: Reporting is divided into meaningful periods (1 year, etc).
  5. Measurement Principle: Financial information is accounted based on cost, not FMV.
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10
Q

What is the output method?

A

Revenue = Services performed to date.
When revenue is recognized based on the value of goods and services transferred to date relative to the remaining goods and services promised.

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11
Q

What are the types of output methods?

A
  1. Time elapsed.
  2. Milestones achieved.
  3. Units produced or delivered.
  4. Surveys of performance completed to date.
  5. Appraisals of results achieved.
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12
Q

What is the input method?

A

When revenue is recognized based on the entity’s efforts or inputs to the satisfaction of the performance obligation relative to the total expected inputs.

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13
Q

What are the types of input methods?

A
  1. Costs incurred relative to total expected costs.
  2. Time elapsed.
  3. Resources consumed.
  4. Labor-hours expended.
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14
Q

What is a repurchase agreement?

A

When you sell an asset, but also promise or have the option to repurchase it

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15
Q

What are the three main forms of repurchase agreements?

A

FINANCE!

  1. Forward: Obligation to repurchase.
  2. Call: Right to repurchase.
  3. Put: Obligation to repurchase @ customer’s request.
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16
Q

What is a financing arrangement?

A

When I have a call or a forward option, and I have to repurchase @ equal or more than original selling price.
Note that Expected Market Value can’t be greater than repurchase price.

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17
Q

How do you account for financial arrangements?

A

JE when sold:
Dr. Cash (for the selling price)
Cr. Financial Liability

If option lapses:
Dr. Financial Liability
Cr. Revenue

If option is excercised
Dr. Financial Liability
Dr. Interest Expense (repurchase price - selling price)
Cr. Cash

18
Q

How is gross profit recognized on the Percentage of Completion (POC) method?

A

A. Overall Gross Profit = Contract price - Estimated total cost
B. % of Completion = Total Actual Costs to Date / Total Estimated Costs of Contract

  1. CY Profit to Date = A * B
  2. Current YTD GP = CY Profit to Date - Beg Profit to Date
19
Q

How is a loss recognized on the Percentage of Completion (POC) and Completed method?

A

Losses are recognized in full in the period they are determined.

20
Q

When do you recognize a current asset or a current liability with the Percentage of Completion (POC) method?

A

Current Asset = Accum Actual Costs + Est earnings > Progress Billings
Current Liaiblity= Accum Actual Costs + Est earnings < Progress Billings

21
Q
A
22
Q

When are items reported in discontinued operations?

A

When a component of an entity have been disposed or is classifed as held for sale.

23
Q

What is the criteria of components “held for sale”?

A
  1. Management commits to a plan to sell the component.
  2. The component is available for immediate sale in its present condition.
    3 An active program to locate a buyer has been initiated.
  3. The sale of the component is probable and the sale is expected to be completed within one year.
  4. The sale of the component is being actively marketed.
  5. It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.
24
Q

What makes a disposal be reported in discontinued operations?

A

When the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.

25
Q

How do you report the results of discontinued operations?

A
  1. Present as a separate component of income, net of tax.

2. Disclose in face or in notes.

26
Q

What are the events that result in Estimate changes?

A
  1. Depreciation method changes.
  2. Officers comp salaries/bonuses.
  3. Write-downs of obsolete inventory.
  4. Material, nonrecurring IRS adj.
  5. Settlements of litigations.
  6. Changes in accounting principles that are inseparable from changes in estimates.
  7. Revision of estimates regarding discontinued operations.
27
Q

How do you report a change in estimate?

A

Current and future periods only. No RE.
Include in notes to FS.
i.e. Depreciation

28
Q

What are the events that result in Changes in Accounting Principles?

A

Only if required by GAAP or if the alternative is preferred over old acct principles.

29
Q

What is the cumulative effect of Changes in Accounting Principles?

A
  • When noncomparative FS are presented:
    Beg RE for current period - Corrected RE
  • When comparative FS are presented:
    Beg RE for 1st period - Corrected RE
30
Q

How is the cumulative effect of Changes in Accounting Principles presented?

A

As an adjustment to Beg RE, net of tax.

31
Q

What is Comprehensive Income?

A

Net income + Other comprehensive income.
It also includes:
2. All changes in equity except those resulting from investments by owners and distributions to owners (dividends).

32
Q

How is comprehensive income presented in the income statement?

A

Could be shown on the face of a combined “statement of income and comprehensive income” or in a separate “statement of comprehesive income”. Items must be shown net of tax, or in notes to the statement.

33
Q

Why do reclass adjustments must be shown in the financial statements that discloses comprehensive income?

A

To avoid double dipping on comprehesive income items that are already included in net income.

34
Q

What is included in other comprehensive income?

A
  1. Changes in the funded status of a pension plan.
  2. Unrealized gains and losses on available-for-sale securities.
  3. Foreign currency items.
  4. Instrument-specific risk.
  5. Effective portion of cash flow hedges.
35
Q

What are the JE for Unearned Revenues?

A

When I receive cash from customer:
Dr. Cash
Cr. Unearned revenue

To recognize revenue:
Dr. Unearned revenue
Cr. Revenue

36
Q

What are the AJE for Prepaid Expenses?

A

When I prepay something (i.e. insurance):
Dr. Prepaid Expense
Cr. Cash

AJE To recognize expense:
Dr. Expense (i.e. Insurance Expense)
Cr. Prepaid Expense

37
Q

What are the AJE for Accrued Revenues?

A

AJE When I sell something on credit:
Dr. Accounts Receivable
Cr. Revenue

When I get paid:
Dr. Cash
Cr. Accounts Receivable

38
Q

What are the AJE for Accrued Expenses?

A

AJE When I buy something on credit or expense for something before I pay for it:
Dr. Expense
Cr. Accounts Payable

When I actually pay for it (cash disbursement):
Dr. Accounts Payable
Cr. Cash

39
Q

What are the basic bitches of AJEs?

A
  1. Recorded by YE, before FS are prepared.
  2. NEVER include cash account.
  3. Always one IS account and a BS account.
40
Q

How do you account for allowance for doubtful accounts? (Estimate)

A

Dr. Bad Debt Expense

Cr. Allowance for doubtful accounts

41
Q

How do you account for allowance for doubtful accounts? (Write off)

A

Dr. Allowance for doubtful accounts

Cr. Accounts Receivable

FAR (12 decks)

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