FAR 1 Flashcards
What are enhancers for SFAC#8 qualitative characteristics of relevant and faithful representations?
-comparability
-verifiability
-timeliness
-understandability
-Cost constraint
(“Compare and verify in time to understand”)
What is the main purpose of SFAC No. 5
Recognition and Measurement in the Financial Statements:
• Recognition criteria and guidance on what and when information should be incorporated in the financial statements
What are the different ways to measure asset and liability attributes?
- Historical Cost (PP&E)
- Current Cost (Inventory)
- Net realizable value (A/R)
- Current Market Value (marketable securities)
- Present value of future cash flows (LT debt “bonds”)
What are the fundamental assumptions of GAAP
- Entity Assumption
- Going Concern
- Monetary Unit
- Periodicity assumption
- Historical Cost principle
- Revenue recognition principle
- Matching Principle
- Accrual Accounting
- Full Disclosure
- Conservatism
When is the revenue recognition principle?
○ When earned AND
○ Realized (paid) or realizable (accrue for revenue)
What is the conservatism principle?
- Use method least likely to overstate assets, revenues/gains or that understates liabilities, expenses/losses in the current period
- Recognize revenues/gains when earning process is complete
- Recognize expenses/losses immediately
What is the matching principle?
expenses follow revenue they are related to - doesn’t govern losses since they are from unusual events
What is the full disclosure principle?
given useful information that influences decision process, but not too much
What is the accrual accounting principle?
Revenue recognized when earned and expenses are recognized in same period as related revenue
What is the only fundemental assumption for the IFRS (IASB) framework for the preparation and presentation of financial statements (SFAC No 5 in GAAP)?
Going concern
What is SFAC No. 6
Elements of financial statements
What are the elements of the financial statements under SFAC No. 6
• Comprehensive Income
• Revenues
• Expenses
• Gains
• Losses
• Assets
• Liabilities
• Equity (of net assets)
• Investments by owners
• Distributions to owners
("REGL ALE needs ID")What is the general definition of revenues?
inflows, enhancements of assets, or reductions of liabilities from delivering goods or services as part of normal operations recognized as gross amount less any allowances for returns and discounts given
What is the general definition of expenses?
Outflows, uses of assets, or incurrence of liabilities from delivering goods or services as part of normal operations
What is the general definition of gains?
Increases in equity from peripheral transactions and other events except revenue and investments from owners
What is the general definition of losses?
Decreases in equity from peripheral transactions and other events except expenses and distributions to owners
What is the general definition of assets?
Probable future economic benefits to be received by the company as a result of past transactions or events. Valuation accounts may be used to show reductions to or increases in an asset that reflect adjustments beyond the historical cost or carrying amount of the asset
What is the general definition of liabilities?
Liabilities are probable future sacrifices of economic benefits arising from a present obligation of the company to transfer assets or provide services to other entities in the future as a result of past transactions or events.
What is the general definition of equity?
Residual interest in the assets of the company that remains after deducting its liabilities
What is the general definition of Investments by owners?
increases in assets from transfers of cash, property, or services from owners.
What is the general definition of distributions to owners?
decreases in assets from transfers of cash, property, or services, or the incurrence of a liability to owners
What is SFAC No.7
Using Cash Flow Information and Present Value in Accounting Measurements
• Framework for accountants to employ when using future cash flows as a measurement basis for assets and liabilities, especially when the factors to consider in the measurement are complex. It also provides a set of principles that govern the use of present value, especially when the timing and/or amount of future cash flows are uncertain.
What are the five elements of present value measurement?
• Estimate of future cash flow
• Expectations about timing variations of future cash flows
• Time value of money (risk-free rate of interest)
• Price for bearing uncertainty
- Other factors (liquidity issues and market imperfections)
What are the two methods of computation that can be used when determining present value
- Traditional (bonds - scheduled known amounts)
- expected cash flow (warranties - uncertain future payments)
