FAR 4 Flashcards
What is the difference between physical capital maintenance and financial capital maintenance
Physical Capital Maintenance - gains and losses re recognized ONLY when assets are disposed of or liabilities are settled
This is commonly used to calculate currently reported net income
Financial Capital - this is when financial capital increases or decreased BOTh when assets and liabilities re settled or disposed of (gains and losses) and when assets and liabilities change in value (holding gains and losses)
Holding Gains and Losses are generally excluded from net income, but are included in OCI
Comprehensive Income which includes net income and OCI uses the financial capital approach because both gains and losses from disposal and settlements AND Holding Gains and losses are included
What is and is not included in comprehensive income
Comprehensive income includes all changes to equity EXCEPT owner -related items such as investments by owner
What does an element need in order to be recognized on the F/S
- meet the definition of an element
- be measurable with reasonable reliability
- be relevant tot users
- be based on information that is representationally faithful, verifiable and neutral
- It may be an element of the balance sheet OR the Income Statement
The fair Value for an asset or liability is defined as
The exit price of an asset or liability which is
the amount that would be received when disposing of an asset and the amount that would be required to be paid in order to transfer a liability
What are the Statements of Financial Accounting Concepts intended to establish?
They are intended to create a conceptual framework for accounting.
They DONT establish GAAP - but the DO establish the objectives and concepts on which the standards of financial accounting an deporting are based.
What does FASB define the meaning of
- the term “ Present fairly in accordance with GAAP
- They also define the hierarchy of sources of GAAP
What is typically issued as part of the due process activities of the FASB for amending the FASB Accounting standards Codification
A proposed accounting standards update
When a company is determined not to be a going concern - what is the effect on how they report their F/S
- They will continue to apply GAAP
- They will have to provide certain disclosures about the substantial doubt
- Only when liquidation is imminent - when they have adopted a plan of liquidation - will they switch to the liquidation basis of accounting
What is a deferred cost
It is a cost you have already incurred, but you will not charge to expense until a later reporting period.
In the mean time it appears on the balance sheet as an asset
The reason why you do this is that you may not have consumed the item or you may want to delay because you want to recognize the cost at the same time as the related revenue
Examples:
You pay $1000 in rent for two months in advance. Once the second month arrives, you consume the asset from prepaid rent to rent expense
Interest cost that is capitalized as part of a fixed asset
The cost of a fixed asset that is charged to expense over time in the form of depreciation
The cost of intangibles assets that is charged to expense over time as amortization
Insurance paid in advance
The costs incurred to register a bond issuance
What is a demand deposit
It is an account with a bank that allows the depositor to withdraw their money without warning. Example - savings account.
What 4 columns are reported on the government wide financial statements
1 - governmental activities
2 -business-type activities
3 - Total column - of these two
4 - Component units
What are the journal entries for purchasing supplies - government
Issue Purchase order:
dr. Encumbrances $5,000
cr. Budgetary Fund Balance - Reserved for Encumbrances $5000
When invoice is received for $4,950 -
reverse the JE:
dr. Budgetary Fund Balance - Reserved for Encumbrances $5000
cr. Encumbrances $5,000
dr. expenditure $4950
cr. vouchers payable $4950
Governmental funds
These funds which include the general fund apply the modified accrual method of accounting -
under which revenues are recognized when they become available and measurable
Enterprise Funds
These are like nongovernmental business enterprises
They apply accrual accounting
They recognize revenue when earned
Government wide Statement of Net position
- Governmentwide statement of net position is prepared on an accrual basis
- Therefore had you bought an asset (police car for 40K) it would be reported on this statement at its carrying value = cost - salvage/ number of years - 30K/4 = 7500
so carrying value = 40,000 - $7500 = 32,500
