Ch02 - Balance Sheet - 2-1Chapter 2 The Balance SheetThe...

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Unformatted text preview: 2-1Chapter 2 The Balance SheetThe FASBs Conceptual FrameworkThe Balance Sheet and business transactionsProcess for tracking account balances (debits and credits)2-2FASBs Conceptual FrameworkThe conceptual frameworkdeveloped by the FASB provides a foundation to be used for financial accounting and reporting:Third levelSecond levelFirst levelOBJECTIVEOBJECTIVEQUALITATIVE QUALITATIVE CHARACTERISTICSCHARACTERISTICSELEMENTSELEMENTSASSUMPTIONSASSUMPTIONSPRINCIPLESPRINCIPLESEXCEPTIONSEXCEPTIONS2-3Objectives of Financial ReportingWhat is the primary objective of financial reporting?a.To provide information that is useful to those making investment and credit decisionsb.To forecast future earnings per share.c.To establish the financial accounting standards board.d.To fund the golden parachutes of financial service company executives.2-4Qualitative CharacteristicsUseful financial information has:1.Relevance Has capacity to make a difference.1.Reliability verifiable and can be confirmed by an independent observer. Examples:How is the value of a truck purchased by Wal-Mart measured?How does Kaiser Permanente determine a liability for malpractice?1.Comparability can be compared between companies (i.e. same accounting rules used).1.Consistency same accounting rules used from one period to the next.2-5ElementsRevenueExpensesGains:Non operating activities (e.g. sale of a building).Losses:Non operating activities (e.g. sale of building).AssetsLiabilitiesStockholders EquityBalance SheetIncome Statement2-6Assumption: Unit-of-Measure1. Accounting measures are in the national monetary unit.2. Only transaction data expressed in terms of money is included in the accounting records. For example:Customer Satisfaction Percentage of International Employees Salaries paid2-7Assumption: Separate EntityThe business entity is separate from its owners.Bill Gates purchases a private island. How does this get recorded?BusinessBooks &RecordsOwnersBooks &Records2-8Assumption: Time Period1. Assumes it is possible to break up an entitys earnings in discrete time periods (month, quarter, year)....
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Ch02 - Balance Sheet - 2-1Chapter 2 The Balance SheetThe...

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