FAR 1.05 Flashcards
1.05 Accrual Basis Accounting
Revenue and Expense Recogniiton
- Revenues and Gains are recognized in the period earned and realized
- -regardless of when they are collected and expenses are recognized in the period incurred, regardless of when they are paid.
1.05 Accrual Accounting
Revenues and gains are recongnized when they are:
Earned- Earnings process is complete (good delivered)
Realizable (Realized) - collect cash or a claim to cash
1.05 Revenue Recognition, a revenue is recognized when:
- A binding arrangement exists (signed contract)
- Services rendered or delivery has occured
- Fixed or determinable price exists
- Collection is reasonably assured
1.05 Sales may be made in which the buyer has a right of return:
- if returns are reasonably estimable, revenue is recognized in the period of sale with an allowance for returns
- if returns cannot be reasonably estimated, revenue is not recognized until the right of return has expired
1.05 Recognize EXPENSES or losses as Incurred:
- Economic benefit is used up (consumed) or assets lose future benefit (as incurred)
- -Cause and effect- expenses that produce revenue at identifiable points in time can be matched directly to revenues (e.g. cost of goods sold) - like a product cost
- -Systematic and rational allocation - expenses that produce revenue over long periods of time are matched to those periods using a reasonable means of allocation (e.g. depreciation)
- -Immediate recognition - some expenses cannot be directly related to specific benefits and are expensed as incurred (e.g. monthly salaries of SG&A employees) - like a period cost
*The rev recognition changes brought about by Accounting Standards Updated 2014-19 & 2016-11 were not testable till Jan 1 2018
1.05 ASC 275 Risks and Uncertainties
-requires disclosure in financial statements of risk and uncertainties existing as of the date of those statements.
- 05 ASC 275 Risks and Uncertainties
- 4 ares of disclosure
- Nature of operations
-Use of estimates
-Certain specific estimates
Current vulnerability associated with certain concentrations
1.05 ASC 275 Risks and Uncertainties
Nature of operations
-includes a description of how the entity generates revenue such as major products and services and principal markets served
–Entities providing multiple products and service will include an indication of their relative importance
–Not-for-profit entities will include a description of the principal services provided and the entity’s revenue sources.
1.05 ASC 275 Risks and Uncertainties
Use of estimates
- should indicate that the prep of FinStmts in accordance with GAAP as well as other applicable financial reporting frameworks, require the use of estimates. Users are also cautioned that actual results may differ from those estimates.
1.05 ASC 275 Risks and Uncertainties
Certain significant estimates
includes those for which it is at least reasonably possibe that a material change in the estimate will occur in the near term. For these items, the entity will disclose the nature of the uncertainty and that a change in the estimate is at least reasonably possible. When the estimate relates to a contingent liability, disclosure will include an estimate of a possible loss, the possible range of loss when a specific amount cannot be reasonably estimated, or when appropriate, the fact that an estimate cannot be made
1.05 ASC 275 Risks and Uncertainties
Current vulnerability due to certain concentrations
occur when an entity does not diversity. These may result from doing large amounts of business with a limited number of customers; relying on a limited number of produces or services; providing goods or services to customers in limited geographical areas or with limited demographics; or relying on a few suppliers for materials, labor, or services. An entity will disclose information about such concentrations that exist at the balance sheet date if:
- -The entity is vulnerable to a possible severe impact in the near term; and
- Events that would cause the severe impact are at least reasonably possible in the near term.
1.05 FASB Accounting Standards Codification (ASC)
- FASB ASC is the single source of authoritative US GAAP for nongovernmental entities.
- replaces all previously issued non-SEC acct lit. GAAP hasn’t changed but the goal was to create one cohesive set of accounting standards.
The codification reorganized thousands of GAAP pronouncements into aprox 90 accounting topics. This is expected to improve the ease of reasearching US GAAP issues.
-GAAP hierarchy will now consist of two levels: one that is authoritative (in FASB ASC) and one that is nonauthoritative (not in FASB ASC)
FASB Accounting standards Codification Topics Presentation (200-299) Assets (300-399) Liabilities (400-499) Equity (500-599) Revenues (600-699) Expenses (700-799) Broad Transactions (800-899( Industry (900-999)
1.05 Statement of Financial Accoutning Concepts (SFAC)
vs Statement of Financial Accounting Standards (SFAS)
Concepts are not applications of GAAP to specific situations, but instead represent the ideas of the FASB as to the theoretical framework which it beleives should guide financial acct and reporting. SFAC 8 replaced SFAC 1&2
1.05 Notes
- Notes to the F/S are used to ensure all disclosures that are required under GAAP are made.
1.05 Notes
Summary of Significant Accounting Policies
- usually 1 or 2nd foot note and describes teh selection of significant accounting principles and methods used in the F/S (e.g. inv costing method) Specific items it will include are:
- The basis for consolidation
- Depreciation methods
- Amortization of intangibles
- Recognition of revenue from contracts with customers
- Recognition of revenue from leasing contracts
