Mod 9A: Basic Concepts Flashcards
(43 cards)
FASB is stands for?
Financial Accounting Standards Board.
As of July 1, 2009 this body became the single source for US GAAP.
FASB’s Accounting Standards Codification (ASC).
FASB issues Accounting Standards Updates (ASUs) to update these?
The Accounting Standards Codification (ASC).
What is the objective of financial reporting?
To provide financial information about the reporting entity that is useful to existing or potential investors, leaders, and other creditors in marking decisions about providing resources to the entity (SFAC 8).
What is the cost-benefit constraint of qualitative characteristics?
If the benefits of information do not exceed the cost of providing that information, it would not be reported.
Fundamental Qualitative Characteristics (3)?
Relevance, Decision Usefulness, Faithful Representation.
Relevant information has (2)?
Predictive Value - requires that information be used to predict future outcomes.
Confirmatory Value - confirms or changes prior evaluations.
Faithful representation has (3)?
Completeness
Neutrality
Free from Error
Why is accrual accounting used over cash basis accounting?
Accrual accounting provides a better indication of future cash flows than cash basis because it records transaction with cash consequences (future cash flows) as they occur instead of when cash is actually received.
5 ways of measuring assets & liabilities (SFAC 5)
Historical cost Current cost Current market value Net realizable (settlement value) Present (or discounted) value of future CF
Historical Cost
PP&E and inventories
Amount of cash or its equivalent, paid to acquire.
Current cost
Amount of cash or equivalent that would have to be paid if acquired currently.
Current market value
Amount of cash or its equivalent obtained by selling asset.
Net realizable (settlement) value.
Short-term receivables and some inventories are reported as.
Non-discounted amount of cash or equivalent that the asset is expected to be converted in due course of business less direct costs.
Present (or discounted) value of future cash flows
Long-term receivables
Present value of future cash inflows into which an asset is expected to be converted in due course of business less present values of cash outflows.
These items are used to compute Earnings (4)
Revenues, Expenses, Gains & Losses.
How does Comprehensive Income differ from Earnings?
It is Earnings adjusted for cumulative accounting adjustments and other non-owner changes in Equity.
Such as foreign currency translation adjustments.
These items are used to compute Earnings (4)
Revenues, Expenses, Gains & Losses.
How does Comprehensive Income differ from Earnings?
It is Earnings adjusted for cumulative accounting adjustments and other non-owner changes in Equity.
Such as foreign currency translation adjustments.
Recognition is the process of?
Formally recording or incorporating an item into the financial statements as an asset, liability, revenue, expense.
Matching - simultaneous recognition of revenues with expenses that are related directly or jointly to the same transactions.
FASB defines Present Value as?
The current measure of an estimated future cash inflow or outflow, discounted at an interest rate for the number of periods between today and the date of the estimated cash flow.
Income is a measure of?
Management’s efficiency in combining the factors of production into desired goods and services.
Under the accrual basis of accounting, revenue is usually recognized?
At Point of Sale
What are the three exceptions to the general Point of Sale revenue recognition rule?
During Production basis
Completion-of-Productions basis
Cash Collection basis
