Financial Reporting Concepts Flashcards
list
According to the FASB conceptual framework, useful information should posses what qualities
financial reporting concepts
relevance;
faithful representation
financial reporting concepts
define
relevance
Conceptual Framework
Information is considered relevant if it provides information that has predictive value about the future, and;
has cofirmatory value
Conceptual Framework
define
confirmatory value
Conceptual Framework (relevance)
confirms or corrects prior expectations
Conceptual Framework (relevance)
define
materiality
Conceptual Framework (relevance)
Materiality is a company-specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor
Conceptual Framework (relevance)
define
faithful representation
Conceptual Framework
means that information accurately depicts what really happened. Information must be:
complete,
neutral, and
free from error
Conceptual Framework
list
enhancing qualities of useful information
Conceptual Framework
comparability;
consistency;
verifiable;
timeliness;
understandability
Conceptual Framework
Define
comparability
FASB enhancing qualities
when different companies use the same accounting principles
FASB enhancing qualities
Define
consistency
FASB enhancing qualities
means that a company uses the same accounting principles and methods from year to year
FASB enhancing qualities
define
verifiability
FASB enhancing qualities
means if independent observers, using the same methods, would obtain similar results
FASB enhancing qualities
Define
timeliness
FASB enhancing qualities
It must be available to decision-makers before it loses its capacity to influence decisions
FASB enhancing qualities
define
understandability
FASB enhancing qualities
means it is presented in a clear and concise fashion so that reasonably informed users of that information can interpret it and comprehend its meaning
FASB enhancing qualities
Define
Monetary Unit Assumption
Assumptions in Financial Reporting
assumption requires that only those things that can be expressed in money are included in the accounting records.
Assumptions in Financial Reporting
Define
Economic Entity Assumption
Assumptions in Financial Reporting
states that every economic entity can be separately identified and accounted for in order to assess a companys performance and financial position accurately
Assumptions in Financial Reporting
Describe
Time Period Assumption
Assumptions in Financial Reporting
states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business
Assumptions in Financial Reporting
Define
Going Concern Assumption
Assumptions in Financial Reporting
states that the business wil remain in operation for the foreseeable future
Assumptions in Financial Reporting
Define
Historical Cost Principle
Principles in Financial Reporting
dictates that companies record assets at their cost;
this is true not only at the time the asset is purchased
Assumptions in Financial Reporting
Define
Fair Value Principle
Assumptions in Financial Reporting
indicates that assets and liabilties should be reported at fair value
Assumptions in Financial Reporting
Define
Revenue Recognition Principle
Assumptions in Financial Reporting
requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied
Assumptions in Financial Reporting
Define
Expense Recognition Principle
Assumptions in Financial Reporting
Dictates that companies recognize expenses in the period in which they make efforts to generate revenue
Assumptions in Financial Reporting
Define
Full Disclosure Principle
Assumptions in Financial Reporting
- Requires that companies disclose all circumstances and events that would make a difference to financial statement users.
- If an important item cannot reasonably be reported directly in one of the four types o financial statements, then it should be discussed in notes that accompany the statements
Assumptions in Financial Reporting
Describe
the cost constraint
Assumptions in Financial Reporting
It weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.
Assumptions in Financial Reporting
Define
Deferrals
Adjusting the Accounts
Are either prepaid expenses or unearned revenues.
Adjusting the Accounts
Define
Accruals
Adjusting the Accounts
- Are either accrued revenues or accrued expenses.
- Companies make adjusting entries for accruals to record revenues for services performed and expenses incurred in the current accounting that have not been recognized through dailiy entries.
Adjusting the Accounts
