FAR_Section_1.3 Flashcards
Full set of Financial Statements
Statement of Position (Balance Sheet), Statement of Earnings Financial & Comprehensive Income (Income Statement), Statement of Cash Flows, Statement of Changes in Owners’ Equity (statement of Investments by and Distributions to Owners)
10 key elements of Financial Statements
Assets, Liabilities, Equity, Investments by owners, Distributions of Owners, Comprensive Income, Revenue, Expenses, Gains, and Losses.
Assets
Economic resource that has a probable future benefit, one can obtain the benefit, one can obtain the benefit, and the transaction creating the benefit has already occurred
Liabilities
An economic obligation in which one needs to use or transfer an asset, it can?t be avoided and the transaction has already occurred
Equity or Net Asset
Assets left over after deducting liabilities; 3 elements: Contributions/investments by owners, Distriubutions to owners, Comprehensive income
Distributions of owners
Dividends
Comprehensive income [DENT]
All changes in equity other than “owner” sources. These items affect Comp. Income, but not net income [DENT]: Derivatives cash flow hedges, Excess adjustment of Pension PBO and FV of plan assets at year, Net unrealized gains orloses on “available-for-sale” securities, Translation adjustments for foreign currency; 4 elements: revenues, expenses, gains, and loses
Physical capital maintenance concept
only recognize an event when an aset is sold or a liability is settled (measures the effects of price changes in nominal or constant dollars)
Financial capital mainten
recognize an event as a change in the value of an asset or liability occurs (recognize holding gains and losses - current GAAP)
Revenue
Inflows from an entitiy’s primary operations
Expenses
Outflows due to an entity’s primary operations
Gains
Increases in equity from incidental transactions
Losses
Decreases in equity from incidental transactions
Accounting rules and concepts
Consistency, Conversation, Cost/benefit, Matching, Full disclosure, Recognition, & Realization
Consistency
Same principle each year
Conversation
considering all risks inherent in the business (accuring a contingent loss)
Cost/benefit
costs don?t exceed benefits to be derived
Matching
recognize a cost as an expense in the same period as the benefit (usually a revenue) is reocgnized
Allocation
spreading a cost over more than one period
Full disclosure
providing all useful info in the ifnancial statements
Recognition
booking an item in the financial statements
Relization
converting non-cash resources into cash or a claim to cash
When to recognize a financial statement element and how to measure it
Meets the definition of an element (assets, liability); Elements is the capable of being measured in monetary terms; The item is Relevant and Faithful Representation (useful)
To measure in Monetary Items
Historical cost, Replacement cost, Fair market value (FMV), Net realizable value, Present value
Historical cost
amount you paid for it (PP&E)
Replacement cost
what it would cost to replace an item (inventory)
Fair market value (FMV)
Per ASC 820, “the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date”
Net realizable value (NRV)
amount expected to a be converted into (A/R)
Present value (PV)
discounted cash flows due to the time value of money (notes/recievable, bonds/payable, leases)
