FAR Ch 1 - FAR - Notes Chapter 1 http:/cpacfa.blogspot.com...

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FAR - Notes Chapter 1 http://cpacfa.blogspot.com Sources of GAAP GAAP are those accounting principles that have substantial authoritative support The power to establish GAAP rests with the SEC however, it has essentially allowed the accounting profession to establish GAAP and self regulate. Statements of Financial Accounting Concepts (SFAC) - establish the objectives and concepts for FASB standards. Serve as the foundation or basic reasoning of a standard Four most authoritative GAAP B Accounting Research B ulletins (ARBs) O Accounting Principles Board O pinions (APBOs) I FASB I nterpretations (clarify GAAP) S FASB S tatements of Financial Accounting Standards (not concepts) Objectives of financial reporting: 1. Disclose the entity’s performance 2. Focus on the informational needs of the external users The Objectives provide information useful in - investment and credit decisions - assessing future cash flows - assessing resources, debt and equity claims Characteristics of accounting information - M aterial – could make a difference in decisions made by users - B enefits of the information > Costs of providing it - U nderstandable to decision makers - D ecision usefulness – broken into 2 primary categories, Relevance and Reliability and 2 secondary characteristics, Comparability and Consistency Relevance – PFT P redictive Value F eedback Value T imeliness Reliability – NRFV N eutrality – free from bias R epresentational F aithfulness – information is valid V erifiability – the results could be duplicated using same techniques Comparability – Apple vs Microsoft Consistency – 2006 vs 2005, trend analysis Full Set of Financial Statements include - Statement of Financial Position (B/S) - Statement of Earnings (I/S) - Statement on Comprehensive Income - Statement of Cash Flows - Statement of Changes in Owners Equity Fundamental Assumptions - Entity assumption – separate corporation - Going concern assumption – entity will continue to operate in the foreseeable future - Monetary unit assumption – inflation is not reflected in the F/S - Historical cost assumption – as a general rule info based on cost no current market value 1
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FAR - Notes Chapter 1 http://cpacfa.blogspot.com Revenue recognition principle – revenue should be recognized (recorded) when it is earned and when it is realized (you’ve been paid) or realizable (believe you’re going to get paid). 1.
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FAR Ch 1 - FAR - Notes Chapter 1 http:/cpacfa.blogspot.com...

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