ch02s - Chapter2 ConceptualFramework Underlying...

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Chapter 2 Conceptual Framework  Underlying  Financial Accounting
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Chapter 2: Key Concepts Discuss the need for a conceptual framework. Discuss the development of the conceptual  framework. Discuss the basic objectives. Discuss the fundamental concepts. Discuss recognition and measurement issues. 2 Accounting 301A-Eiler
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What is the Conceptual Framework? According to the FASB it is “a coherent system of  interrelated objectives and fundamentals that  that can lead to consistent rules and that  prescribes the nature, function, and limits of  financial reporting.” 3 Accounting 301A-Eiler
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What is the Conceptual Framework? Let’s think about what all this means… According to the FASB it is “a  coherent system  of  interrelated objectives  and fundamentals  that that  can lead to  consistent rules  and that prescribes  the nature, function, and limits of financial  reporting.” Objectives identify the goals and purposes of financial  reporting. Fundamentals are the underlying concepts of financial  accounting. These provide guidance in selecting  they should be summarized and reported. 4 Accounting 301A-Eiler
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What is the Conceptual Framework?  (cont.) The FASB has issued seven Statements of  Financial Accounting Concepts (SFACs) to date  (Statements 1 through 7.) These statements set forth major recognition and  reporting issues. Statement 4 pertains to reporting by non- business entities. The other six statements pertain to reporting by  business enterprises. 5 Accounting 301A-Eiler
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Statement of Financial Accounting  Concepts 6 Accounting 301A-Eiler Statement 1 Statement 2 Statement 6 Statement 4 Statement 5 Statement 7 Objectives of Financial  Reporting (Business) Qualitative Characteristics Elements of Financial  Statements  (replaces 3) Objectives of Financial  Reporting (Non-business) Recognition and  Measurement Criteria Using Cash Flows Brief Title Statement
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7 Accounting 301A-Eiler ASSUMPTIONS 1. Economic entity 2. Going concern 3. Monetary unit 4. Periodicity PRINCIPLES 1. Measurement 2. Revenue recognition 3. Expense recognition 4. Full disclosure CONSTRAINTS 1. Cost-benefit 2. Materiality 3. Industry practice 4. Conservatism OBJECTIVES 1. Useful in investment and credit decisions 2. Useful in assessing future cash flows 3. About enterprise resources, claims to resources, and changes in them ELEMENTS Assets, Liabilities, and Equity Investments by owners Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses Illustration 2-7   Conceptual Framework  for Financial Reporting
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This note was uploaded on 11/08/2011 for the course ECON 102 taught by Professor Smith during the Spring '11 term at Saddleback.

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ch02s - Chapter2 ConceptualFramework Underlying...

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