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55 Cards in this Set
- Front
- Back
First Level of Conceptual Framework |
Basic Objectives (what is useful?) |
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Second Level |
Qualitative Characteristics and Elements |
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Qualitative Characteristics |
Relevance, Faithful representation, and Enhancing Qualities. (REF) |
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Relevance |
Predictive Value, Confirmatory, and Materiality (PMC) |
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Faithful Representation |
Completeness, Neutrality, and free from error (CNF)
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Enhancing Qualities |
Verifiability, Comparability, Understanding, and Timeliness (VCUT) |
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Elements |
Assets, Liabilities, Equity, Investment by owners, distribution by owners, comprehensive income, revenues, expenses, gains, losses |
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Third Level |
Assumptions, Principles, Constraints (Apc)
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Assumptions |
Periodicity, Going Concern, Economic Entity, Monetary Unit (PGEM) |
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Principles |
Measurement, Expense Recognition, Revenue Recognition, Full Disclosure (MERF) |
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Constraints |
Cost Constraint |
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Relevant |
Making a difference in a decision |
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predictive value |
value as an input to predictive processes used by investors |
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material |
omitting or misstating could influence decisions |
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Faithful representation |
numbers and descriptions match what really existed |
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Completeness |
all information that is necessary is provided |
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Neutrality |
company cannot select information to favor one party over another |
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Free from error |
free from error |
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Verifiability
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when independent measures, using the same methods, obtain the same results |
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Comparable |
Information that is measured and reported in a similar manner for different companies |
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Understandability |
quality of information that lets reasonably informed users see its significance |
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Moment in Time (Basic Elements) |
Assets, Liability, and Equity |
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Period Time |
Investment by owners, distribution to owners, comprehensive income, revenue, expenses, gains, losses |
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Economic Entity |
company keeps its activity separate from its owners and other businesses |
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Going Concern |
Company to last long enough to fulfill objectives and commitments |
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Monetary Unit |
Money is the common denominator |
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Periodicity |
Company can divide its economic activities into time periods |
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Measurement principle |
Historical cost and fair value |
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Historical cost |
record cost when you bought it |
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Fair value |
what its worth today |
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Revenue Recognition |
requires that companies recognize revenue in the accounting period in which performance is satisfied |
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Expense Recognition |
Expense follows revenues |
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Product costs |
Material, labor, overhead, direct relationship between cost and revenue, and recognize in period of revenue |
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Period costs |
Salaries, administrative costs, no direct relationship between cost and revenue, recognize expense as incurred |
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Cost Constraint |
cost of providing information must be weighed against the benefits that can be derived from using it
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Conceptual Framework |
we need an established body of concepts |
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7 Statements of Financial Accounting |
SFAC Nos. 1,2,3,5,6,7,8 |
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SFAC No. 1 |
presents the goals and purposes of accounting superseded by SFAC No. 8 |
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SFAC No. 2 |
examines the characteristics that make accounting information useful superseded by SFAC no. 8 |
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SFAC no. 3 |
Provides definitions of items in financial statements, such as Assets, liabilities, revenues, and expenses |
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SFAC No. 5 |
Sets forth fundamental recognition and measurement criteria and guidance on what information should be formally incorporated into financial statements |
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SFAC No. 6 |
Replaces SFAC. No 3, includes non-profit organizations |
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SFAC No. 7 |
provides a framework for using expected future cash flows and present values as a basis for measurement |
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SFAC No. 8 |
replaces SFAC No. 1 and 2 |
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"Why" purpose of accounting |
First Level: Basic Objective |
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Forms bridge between the "why" and the "how" |
Second Level: Fundamental Concepts
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Investments by owners |
increases net assets |
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Distribution by owners |
decreases the net assets |
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comprehensive income |
change in net assets from non-owner sources |
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gains |
increase in equity incidentally |
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losses |
decrease in equity incidentally |
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Economic entity assumption |
a company keeps its activity separate and distinct from its owners
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Going Concern |
Company will have a long life, use depreciation and amortization
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Full Disclosure |
financial reports reflects a series of trade-offs |
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Full disclosure |
sufficient detail, sufficient condensation, keeping in mind costs of preparing |