ACCT

List the components of the current conceptual framework.

Elements of the financial reporting system, Objective of financial reporting, Characteristics associated with high-quality financial information, Recognition and measurement criteria

Outflows or other consumption of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

Expenses

Identify whether the following items are characteristics of information that are relevant​ (REL) or a faithful representation​ (FR):

FR: Info that is neutral REL: Information has​ decision-making implications because of its predictive value FR: Information that is complete FR: Information that is free from error REL: Information has​ decision-making implications because of its confirmatory value

When are expenses recognized under U.S.​ GAAP?

Firms recognize expenses​ (1) when the​ entity's benefits are consumed in the process of producing or delivering goods or rendering services and​ (2) when an asset has experienced a reduced​ (or eliminated) future benefit or when a liability has been incurred or​ increased, without an associated benefit.

Increases in equity (net assets) from an entity's peripheral or incidental transactions and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.

Gains

Amount of cash (or equivalent) that is paid to acquire the asset. In the case of a liability, this measurement base is the amount of cash (or equivalent) that is received when the obligation was incurred. This measurement base may change over the life of the asset/liability if it is adjusted for depreciation or amortization.

Historical cost

Explain the historical cost concept.

Historical cost is the amount of cash​ (or equivalent) that was paid to acquire the asset. In the case of a​ liability, historical cost is the amount of cash​ (or equivalent) that was received when the obligation was incurred. The historical cost may change over the life of the​ asset/liability if it is adjusted for depreciation or amortization.

What is the recognition principle and when is an item considered​ recognized?

Recognition is the process of reporting an economic event in the financial statements. Recognized events are included in a line item on the financial statements as opposed to inclusion in the notes in the statements only.

Inflows or other enhancements of an entity's assets or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Revenues

Explain the difference between revenues and gains.

Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities​ (or a combination of​ both) from delivering or producing​ goods, rendering​ services, or other activities that constitute the​ entity's ongoing major or central operations. Gains are increases in equity​ (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.

Why is a conceptual framework of accounting necessary and​ justifiable?

A​ well-developed conceptual framework is needed to ensure that a set of accounting standards is coherent and uniform.​ Thus, standard setters refer to the framework when developing and revising accounting standards. In this​ way, the individual standards are consistent and supported by the framework.

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Comprehensive income

What are the attributes of​ relevance?

Confirmatory Value, predictive value, and materiality

Amount of cash (or equivalent) that would be required if the asset were acquired currently.

Current cost

Match the enhancing characteristic with its​ definition:

Different knowledgeable parties could reach a consensus that a particular depiction is a faithful representation :Verifiability Information is classified, characterized, and presented clearly :Understandable Users of the financial statements can identify and understand similarities and differences between different entities :Comparability Information is available to financial statements users soon enough to be useful :Timely

Decreases in equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. This element decreases ownership interest (or equity) in an enterprise.

Distribution to owners

Identify whether the following items are fundamental characteristics​ (FC) or enhancing characteristics​ (EC):

EC: Comparable FC: Relevant EC: Timely EC: Understandable FC: Faithful representation EC: Verifiable

Who are the primary financial statement user groups identified in the objective of financial​ reporting? ​(Select all that​ apply.)

Existing and potential investors, lenders, and other creditors

Describe when financial information is a faithful representation.

Financial reporting information is a faithful representation when it is complete, neutral, and free from error

Describe the fundamental characteristics of financial information. Explain the enhancing characteristics of financial reporting information.

Fundamental characteristics are those basic characteristics that distinguish useful financial reporting information from information that is not useful. Enhancing characteristics distinguish more useful information from less useful information.

Identify whether the following definitions relate to​ assets, liabilities, or equity.

Liabilities: Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. Equity: The net assets are the residual interest in the assets of an entity that remains after deducting its liabilities. Assets: Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Decreases in equity (net assets) from an entity's peripheral or incidental transactions and from all other transactions and other events and circumstances affecting the entity except those that result from expenses or distributions to owners.

Losses

Amount of cash (or equivalent) that is expected to be received in exchange for an asset less the direct costs of the disposal. In the case of a liability, it is the amount of cash (or equivalent) expected to be paid to liquidate the obligation, including any direct costs of liquidation.

Net realizable value

Indicate the assumption​ (going concern,​ business/economic entity, monetary​ unit, or​ periodicity) that best fits the following scenarios.

Periodicity: Monro Manufacturing requires that its division managers report to corporate headquarters on a monthly basis. Business or economic entity: Rainbow Paints, Inc. owns 15% of New Eljam Company. Rainbow does not consolidate this affiliate company because it cannot control New Eljam's operations. Going concern: Financial analysts at Nelson Corporation use an infinite-growth assumption in building a model to value the company. Monetary unit: Factory buildings are reported on Jack Jones Warehousing, Inc.'s balance sheet as the sum of the total cost of two plants; one of the plants was acquired in 1951 and the other was purchased in 2011.

Discounted net cash flows expected to be received on exchange of an asset, or paid out in the case of a liability.

Present value of future cash flows

Explain the concept of relevance.

Relevance is a fundamental characteristic of useful financial information. Relevant information is capable of making a difference in decision making because of its predictive​ value, confirmatory value and materiality.

Discuss the three main aproaches to recognizing expenses. ​

Some expenses are allocated systematically over the periods during which the related asset provides benefit. For​ example, a building is depreciated​ (i.e., expensed) over the periods that it will provide a benefit to the entity. Some expenses are recorded in the period in which they are incurred. For​ example, the salary of a salesperson is recorded in the period worked. Expenses are recognized when they are matched with their related revenues.

Explain the concept of materiality.

The concept of materiality determines the relevancy of information. Information is material if reporting it inaccurately or omitting it would affect the decisions made by the users of the financial statements.

Amount of cash (or equivalent) that would be received by selling the asset in an orderly liquidation. Liabilities may also be measured at current market value.

Current market value

Explain the objective of financial reporting.

According to the Conceptual​ Framework, "The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential​ investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve​ buying, selling, or holding equity and debt​ instruments, and providing or settling loans and other forms of​ credit."

What is predictive​ value?

Information has predictive value if decision makers can use it as an input into processes that help forecast future outcomes. For​ example, companies report sales revenue each year. Financial statement users may use the prior​ year's revenues to predict future revenues.

What is the difference between predictive value and confirmatory​ value?

Information has predictive value if it can be used as an input into processes that help predict future outcomes. Information has confirmatory value if it provides feedback about prior evaluations.

When is financial information considered​ "understandable"?

Information is understandable when it is​ classified, characterized, and presented clearly. This does not mean that an uninformed reader of financial statements should be able to understand all information presented.

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something valuable to obtain or increase ownership interests (or equity) in it.

Investments by owners

What is the conceptual framework for financial​ reporting?

The conceptual framework sets forth the​ theory, concepts, and principles that underlie financial reporting standards. It is designed to ensure that a set of accounting standards is coherent and uniform. The conceptual framework includes the objectives of financial​ reporting, the characteristics associated with high quality accounting​ standards, provides the elements of the financial reporting system and specifies the recognition and measurement criteria to be used.

Explain the going concern concept.

The going concern concept indicates that accountants will record transactions and prepare financial statements as if the entity will continue to operate for an indefinite period of​ time, unless there is evidence to the contrary. The going concern concept justifies the use of historical cost by the following rationale. If the business is going to exist for an indefinite period of​ time, productive assets are not for sale and as a​ result, market values are not particularly relevant.

Describe the primary users of financial statements according to the conceptual framework.

The primary users of financial statements are investors, lenders, and other creditors who are not in a position to demand information from the entity. They rely on the financial statements to help them assess the amount, timing, and uncertainty of future cash flows of the reporting​ entity, so that they can form an opinion about future returns that will accrue to them by holding a stake in the entity. This view applies to both U.S. GAAP and IFRS.

What are the elements of financial reporting and where are they​ reported?

US GAAP identifies two main groups of​ elements: ​point-in-time elements and ​period-of-time elements. ​Point-in-time elements represent​ resources, claims to​ resources, or interests in resources and appear on the balance sheet.​ Period-of-time elements describe events and circumstances and appear on the income​ statement, statement of comprehensive​ income, or statement of​ shareholders' equity.

What is the definition of an​ asset?

Under U.S.​ GAAP, an asset is defined as a probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events.

What is the revenue recognition principle and when is revenue considered​ recognized?

Under U.S.​ GAAP, the revenue recognition principle is used to guide the timing of revenue recognition. It states that revenue is recognized when it is realized or realizable and earned. An item is considered realized or realizable when a good or service has been exchanged for cash or claims to cash. Revenues are considered earned​ "when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the​ revenues."

How are transactions recorded under accrual​ accounting?

​Accrual-basis accounting records revenues according to the revenue recognition principle and records expenses according to the expense recognition​ principle, regardless of when cash is received or paid.​ Accrual-basis accounting records revenues when earned and expenses when incurred.

Are the FASB and IASB conceptual frameworks fully​ converged? Explain.

​Currently, the FASB and the IASB are collaborating to create a joint conceptual framework. While each of the standard setting bodies has an existing​ framework, the boards are working to improve and converge the two frameworks. They have converged only the​ "Objective and Qualitative​ Characteristics" at this time.

What is the difference between a​ point-in-time element and a​ period-of-time element?

​Period-of-time elements represent the results of events and circumstances that occur between two balance sheet​ dates, or a period of time. In the conceptual​ framework, U.S. GAAP identifies seven​ period-of-time elements: 1. Investments by​ owners; 2. Distributions to​ owners; 3.​ Revenues; 4.​ Gains; 5.​ Expenses; 6.​ Losses; and 7. Comprehensive income.​ Point-of-time elements represent​ resources, claims to​ resources, and interests in resources at a point in​ time, such as a balance sheet date. U.S. GAAP identifies three​ point-in-time elements that are​ assets, liabilities, and equity.