Chapter 2 Outline

Chapter 2 Outline - Chapter 2 Accounting Conceptual...

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Chapter 2 Accounting Conceptual Framework, Balance Sheet and the Recording Process A. Financial Accounting Conceptual Framework 1. Qualities that make accounting information useful: • Relevancy • Reliability • Comparability • Consistency 2. Basic Assumptions • Separate Entity (Economic Entity) • Unit of Measure (Monetary Measure) • Time Period (Accounting Period) • Continuity (Going Concern) 3. Principles: • Historical Cost Principle • Revenue Recognition Principle • Matching Principle • Full Disclosure Principle 4. Constraints • Cost benefit • Materiality • Conservatism
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Exercise: A number of accounting reporting situations are described below. For each of the situation, list the assumption, principle, or constraint that has been violated. 1. Amy Cosmetics signed a contract to ship products to Ardon Ltd. in October. Amy Cosmetics recognized revenue in September. 2. In preparing its financial statements, Diana Hughes Company omitted information concerning its method of accounting for inventories 3. 3. Jan Way Corp. allocates the payment on a 2-year insurance policy over 5 years. 4. Dana Kingston Co. reports building on its balance sheet at its current market value of 400 million. The company bought the building 5 years ago at 380 million. 5. 5. Susan El, president of the Classic Music Company, paid her wedding by using company funds and charged her wedding expenses to the company’s administrative expense account. B.
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This note was uploaded on 04/07/2008 for the course ACC 201 taught by Professor Jackson during the Spring '08 term at Northeastern.

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Chapter 2 Outline - Chapter 2 Accounting Conceptual...

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