Chapter_2 - Midterm Review Conceptual Framework The Need...

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Midterm Review Conceptual Framework The Need for a Conceptual Framework To develop a coherent set of standards and rules To solve new and emerging practical problems Development of Conceptual Framework SFAC No.1 - Objectives of Financial Reporting SFAC No.2 - Qualitative Characteristics of Accounting Information SFAC No.3 - Elements of Financial Statements (superseded by SFAC NO. 6) SFAC No.4 - Non business Organizations SFAC No.5 - Recognition and Measurement in Financial Statements SFAC No.6 - Elements of Financial Statements (replaces SFAC No. 3) SFAC No.7 - Using Cash Flow Information and Present Value in Accounting Measurements First Level: Basic Objectives Financial Reporting should provide information that: (a) Is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. (b) Helps present and potential investors and creditors and others users in assessing the amounts, timing, and uncertainty of prospective cash receipts. (c) Portrays the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its resources and claims tot hose resources. Second Level: Qualitative Characteristics Secondary Qualities: Comparability: Information that is measured and reported in a similar manner for different companies is considered comparable. Consistency: When a company applies the same accounting treatment to similar events from period to period. Second Level: Elements Concepts Statement No. 6 defines ten interrelated elements that relate to measuring the performance and financial status of a business enterprise. “Moment in Time” “Period of Time” Assets Investment by owners The FASB has issued six Statement of Financial Accounting Concepts (SFAC) for business enterprises.
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Liabilities Distribution to owners Equity Comprehensive income Revenue Expenses Gains Losses Third Level: Assumptions Economic Entity: company keeps its activity separate from its owners and other
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Chapter_2 - Midterm Review Conceptual Framework The Need...

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