FAR 2 Flashcards
How to convert from accrual basis to cash basis when given income…(equation)
A = L + E Change in A = Change in L + Change in E [break assets down] Change in cash + Change in other assets (OA) = same [isolate cash] Change in C = Change in L + Change in E - Change in OA Change in C = Change in L - Change in OA [can ignore equity] [pay attention to signs, especially OA]
How to convert from cash basis to accrual basis when given income…(equation)
Change the signs
Change in C = - Change in L + Change in OA
How to convert from cash basis to accrual basis when given expense…(equation)
Change in C = Change in L - Change in OA
[watch the signs]
How to convert from accrual basis to cash basis when given expense…(equation)
Change in C = - Change in L + Change in OA
What other comprehensive basis of accounting be used other than GAAP? Are they acceptable under GAAP?
- Same basis as used to file an income tax return.
- Cash receipts and disbursements basis.
No they are not acceptable under GAAP
What are the most common modifications when converting from cash to modified cash?
Capitalization and amortization of long-lived assets and accrual for income taxes.
Cash collection for A/R equation…
Beginning balance \+ Sales - Collections - Write offs = Ending balance
Operating activities of the stmt of cash flows includes….
I/S transactions - Revenues and expenses
Investing activities of the stmt of cash flows includes…
LT assets and investments (collection of note receivable from related party b/c company is lending money to related party and lending is not a primary business activity).
Financing activities of the stmt of cash flow includes…
Liabilities and owners’ equity (proceeds from note payable)
Elements of Codification…
Codification only includes GAAP principles
Codification includes authoritative guidance adopted prior to the Codification (including APB Opinions and FASB Interpretations)
Includes All GAAP principles which are equally authoritative (no hierarchy)
Codification does not included international stds (IFRS)
Does not include all SEC rules
How is the Codification changed/updated?
Through Accounting Standards Updates (ASUs)
Conceptual framework (NEED TO MAKE PAPER FLASHCARD FOR THIS)
Establishes objectives/concepts for developing financial accounting/reporting standards (Not GAAP)
Objective of financial reporting: DECISION USEFULNESS
Primary Qualitative characteristics:
1. Faithful Representation: (comparability) [Think Depend]
a. Completeness
b. Neutrality-never compromise
c. Free from material error
2. Relevance: (comparability) [Think Relate]
a. Predictive value
b. Confirmatory value-usefulness
c. Materiality
Secondary Qualitative characteristics:
1. Consistency - increases usefulness/relevance of info
Constraint:
1. Cost-benefit
Recognition is…
Recording and reporting an item in the financial statements
Not all recognitions are realizations
Realization is…
Converting noncash resources/rights into money
All realizations are recognitions
Interim financial statements emphasize
Timeliness
Objectives of financial reporting are based on…
Needs of the users of the information
Most important: assessments of future performance and cash flow generation
Consistency…
applying accounting principles in the same manner from year to year
Going concern…
assuming the entity will continue into the future;
supports historical cost principle
Matching
match expenses with the revenues generated
Conceptual framework enhancing qualitative characteristics: (NEED TO MAKE PAPER FLASHCARD FOR THIS)
- Comparability
- Verifiability
- Timeliness
- Understandability
