LESSON 2 - 1 Lesson2 FINANCIAL ACCOUNTING STANDARDS BOARD...

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Lesson 2  FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) After it was established in 1934, the SEC made the decision to delegate (to assign) the responsibility for developing the specific Generally Accepted Accounting Principles (GAAP) to special groups of economists and accounting professionals outside the SEC. You will learn more about the development of GAAP later on in this Lesson. For now, you should know that the main GAAP-setting entity for the SEC has been the Financial Accounting Standards Board (FASB). As such, the FASB has codified (defined) in its “Statements” many of the generally accepted accounting standards and procedures in use today. You should review the FASB home web site at: http://www.fasb.org/st/ ACCOUNT CATEGORIES, SUB-CATEGORIES, and ACCOUNTS As you learned in Lesson 1, accountants and bookkeepers analyze, record, and summarize detailed accounting (economic) events by recording detailed Accounting Transactions, as a prerequisite to preparing the four Financial Statements. Also, in your introduction to the Financial Statements, you were introduced to the terms “Assets”, “Liabilities,” “Stockholder’s Equity” used in the Balance Sheet; and you were introduced to the terms “Revenues” and “Expenses” used in the Income Statement. Now you will learn the more formal FASB definitions for these terms. More formally, these five terms just mentioned are the Five Categories of Accounts used in accounting (also referred to as “General Account Types” or “General Account Classifications”). Within each of these five Account Categories, there are many specific Accounts and sub-categories of accounts; but before you began learning about the specific Accounts and account sub- categories, you need to first learn the names and formal (FASB) definitions of the five Account Categories already named above. In the following table, you are given the formal definitions (in quotes) that you should memorize. Below each formal definition is an informal description that may help you better understand the meaning of the formal definition: Five Accounting Account Categories: Three Balance Sheet Account Categories 1
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ASSETS “Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.” That is, (1) the “physical objects” the business (the “entity”) legally owns, such as office supplies, land, buildings, delivery trucks; and (2) the legal “rights” the business has, such as its legal patents for new innovations that its Research and Development (R&D) department has developed. The business will indeed enjoy “future economic benefits” when it uses its physical objects and rights in the future. The “probable” in the definition refers to the unlikely chance that the business may not get to have the “future benefit” of an asset; for example, when an uninsured building is destroyed by fire. LIABILITIES
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This note was uploaded on 07/16/2010 for the course ACCT 2302 taught by Professor Dr.winking during the Spring '10 term at Tulane.

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LESSON 2 - 1 Lesson2 FINANCIAL ACCOUNTING STANDARDS BOARD...

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