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41 Cards in this Set

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What are the three required disclosures for changes?
a. The nature of and justification for the change

b. The effect of the change on each financial statement line item

c. A statement that comparative information has been retroactively adjusted or that retrospective application is impracticable
Cumulative effect is reflected in
assets or liabilities and beginning retained earnings
Retroactive application restates
prior period financial statements
If it is impracticable to determine the cumulative effect of the change, the entity shall apply the new principle as if the change was made
prospectively (i.e. change to LIFO).
Changes in accounting estimates are:
prospective
Prospective means
current or future periods
For changes in estimates that are material, a disclosure note should describe the
nature of the change and the effect on current income.
Change in Estimate Effected by Change in Principle is new category mostly for:
Depreciation expense
A change in reporting entity is
retrospective application
Undepreciated cost as of 1/1 =
Cost - Depreciation to date
Depreciable Base =
Undepreciated cost as of 1/1 - Residual value
New annual depreciation =
Depreciable Base - REMAINING life
Accounting for error corrections is
retrospective application
If RE is affected by error, then correction is reported as a
prior period adjustment (PPA) to Beg Retained Earnings
Change from Non-GAAP to GAAP principle is a
error correction
A Prior Period Error Not Affecting Income Involves
incorrect account classification (No PPA)
An example of Prior Period Error Not Affecting Income Involves
classifying salaries payable as accounts payable
A Prior Period Error Affecting Income example is
Failure to record depreciation expense as a asset (PPA)
With a counterbalance error, RIE is fixed at the end of year
2, after books closed
If books aren't closed for counterbalance error then adjust
RIE
A counterbalance error is
Error in Ending Inventory under periodic method
Or
cash versus accrual accounting
Error correction disclosures are:
1. The nature of the error

2. The impact of the error on each financial statement line item

3. Statement that comparative information is retroactively adjusted
COGS =
Beg Inv + Net Purch - Ending Inv
Every type of change is retrospective except
change in estimate
In every set of financials, the first footnote is
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies discloses
the methods used to prepare financial stmts
The cost-benefit principle says to report
financial facts significant enough to influence the judgment of an informed reader
Inventory note includes
a. Basis of Inv (lower of cost or market)

b. Costing Method (LIFO,FIFO, weighted average)
Property, Plant, and Equipment note includes
a. Basis of valuation (historical cost)

b. Pledges, liens, or other commitments related to these assets

c. Depreciation: current period depreciation expense and balance of accumulated depreciation
Credit claims note includes
a. Methods of financing

b. Timing of future cash outflows
Equity Holders’ Claims note includes
a. Shares authorized, issued, and outstanding

b. Equity Instruments

c. Restrictions on the earnings available for dividends
Contingencies and Commitments includes
• Litigation, debt, taxes, and purchase commitments
Items Requiring Extensive Disclosure
• Deferred Taxes, Pensions, and Leases
Accounting changes includes
• Change in Principle and Change in Estimate, if material
Subsequent events are
a. Events that occur after the financial statement date, but before report issuance (public companies have 90 days to issue)
Type 1 subsequent event
adjusts financial statements because already in year end stmt
Type 2 Event is
disclosure only
Related party transactions are
not at an “arms length”
SFAS 57 requires disclosure of
the nature of the relationship, a description of the transaction, and the dollar amounts involved
Identifying Operating Segments – A component:
1. That earns revenues and incurs expenses

2. Whose operating results are regularly reviewed by the chief operating decision maker to assess performance

3. That has discrete financial information available from the internal financial reporting system.
Must meet one of the tests for significance to be a segment:
1. Revenue > than 10% of combined segment revenue


2. Absolute value of Profit/Loss > 10% of > :


a. Combined operating profit of all segments that did not incur a loss

b. Combined loss of all segments that did incur a loss

3. Assets > 10% of combined segments assets