Ch02 - Balance Sheet

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

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Unformatted text preview: 2-1Chapter 2 – The Balance Sheet•The FASB’s Conceptual Framework•The Balance Sheet and business transactions•Process for tracking account balances (debits and credits)2-2FASB’s 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.2-5Elements•Revenue•Expenses•Gains:Non operating activities (e.g. sale of a building).•Losses:Non operating activities (e.g. sale of building).•Assets•Liabilities•Stockholder’s 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 &RecordsOwners’Books &Records2-8Assumption: Time Period1. Assumes it is possible to break up an entity’s earnings in discrete time periods (month, quarter, year)....
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Ch02 - Balance Sheet - 2-1Chapter 2 – The Balance...

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