Lesson 1 - Basic Concepts and Financial Statements Flashcards
According to FASB what are the fundamental characteristics?
Relevance & Reliablilty/Faithful Representation
What is relevance?
Think Roger is PC - Predictive Value and Confirmatory Value
What is Faithful Representation/Reliability?
Think Roger is on Fence - free from error, neutral, complete-
According to FASB, what are the enhancing qualitative characteristics?
Think Roger is CUTV - Comparability, Understandability, Timeliness, Verifiability
What are the constraints?
Cost/Benefit and Materiality
What are the general accounting rules and concepts
Consistency, Conservatism, cost/benefit, matching, allocation, full disclosure, recognition, realization
Consistency
same principle each year
conservatism
considering all risks inherent in the business (accruing a contigent loss)
cost/benefit
cost don’t exceed the benefit
matching
recognize a cosnt as an expense in the same period as the benefit
allocation
spreading a cost over more than one period
full disclosure
providing all useful info in the F/S
recognition
booking an item in the F/S
Realization
converting noncash resources into cash or a claim to cash
Fair Value of Non Financial Assets
Highest and Best Use
Preferred Dividend Earned Ratio
Total Earnings / total preferred dividends
FASB Process for Setting Accounting Standards
FASB can seek information about accounting and reporting issues by holding public forums usually based on exposure draft
Valuation for property contributions to non-profit organizations
Fair value on date donation is made
No. of Days Sales in Average Inventories for the current year
Determine sales/day or COGS divided by sales days; determine average inventory; take average inventory divided by cost of sales per day
financial capital
concept that all changes in the value of an asset or liability should be recognized as they occur - comprehensive income
physical capital
concept that gains and losses related to assets and liabilities should be recognized sold or settled; net income
Average number of days to collect accounts receivable
average accounts receivable divided by average sales per day
inventory turnover
cogs divided by average inventory
fair value of an asset when no principal market exists
the most advantageous market
