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31 Cards in this Set

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What is the underlying theory of financial accounting known as?
the Conceptual Framework
What is the conceptual framework
A body of doctrine that provides the basis for GAAP
In a sense, the conceptual framework has
developed and evolved over the years as the accounting profession has evolved
What happened with the conceptual framework as we know it?
It was codified by the Financial Accounting Standards Board beginning in the late 1970's.
What are the series of documents that form the basis for everything covered in Accounting 221 called?
FASB Statements of Financial Accounting Concepts
The conceptual framework can be broken down into these sections:
Objectives of Financial Reporting
Qualitative Characteristics of
Accounting Information
Elements of Financial Statements
Recognition and Measurement Criteria
Recognition and Measurement Criteria can further be broken down into what parts?
Assumptions
Principles
Constraints
What is the primary objective of financial reporting?
To provide information that is useful to external decision makers in the assessment of future cash flows. In other words, to provide information useful for decision-making
The qualitative characteristics of accounting information are broken into two groups:
Primary and Secondary
What are the Primary Characteristics of accounting information
Relevance-must be available before it loses its relevance

Reliability-Information must be free from error and basis
What makes information relevant?
it must be

a. timely
b. predictive value
c. feedback value
Define timely
relevant inforamtion must be available before it loses its relevance
Define predictive value
Information must aid users ability to assess and predict the outcome(s) of events
Define feedback value
Information must aid users in their assessment of previous outcomes
What components make information reliable?
They must have

a. validity
b. verifability
c. neutrality
Define validity
Information must measure the economic event that it says it measures
Define verifiability
Information must be able to be confirmed as being accurate
Define neutrality
information must be unbiased
What characteristics make up secondary characteristics?
1. Comparability-Information can be compared to information from other businesses.

2. Consistency-Information can be compared across time periods
What do the elements of financial statements define?
What items are included in a full set of financial statements
What are the elements on a balance sheet
assets
liabilities
equities
Define assets
Economic resources used by a business in the production of revenue
Define liabilities
Obligations of a business to provide assets or services sometime in the future
Define equities
Owner's residual interest in a business
What are the 2 types of equities?
a. Contributed Capital (Common Stock)
b. Retained Earnings
Define Contributed Capital (Common Stock)
Portion of assets contributed to a business by its owners
Define retained earnings
portion of assets resulting from the operations of a business that are retained in the business
Give an example of retained earnings
Distributions (Dividends)
Define distributions (dividends)
Transfers of wealth from a business to its owners
Define Contributed Capital (Common Stock)
Portion of assets contributed to a business by its owners
Define retained earnings
Portion of assets resulting from the operations of a business that are retained in the business