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31 Cards in this Set
- Front
- Back
What is the underlying theory of financial accounting known as?
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the Conceptual Framework
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What is the conceptual framework
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A body of doctrine that provides the basis for GAAP
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In a sense, the conceptual framework has
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developed and evolved over the years as the accounting profession has evolved
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What happened with the conceptual framework as we know it?
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It was codified by the Financial Accounting Standards Board beginning in the late 1970's.
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What are the series of documents that form the basis for everything covered in Accounting 221 called?
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FASB Statements of Financial Accounting Concepts
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The conceptual framework can be broken down into these sections:
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Objectives of Financial Reporting
Qualitative Characteristics of Accounting Information Elements of Financial Statements Recognition and Measurement Criteria |
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Recognition and Measurement Criteria can further be broken down into what parts?
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Assumptions
Principles Constraints |
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What is the primary objective of financial reporting?
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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
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The qualitative characteristics of accounting information are broken into two groups:
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Primary and Secondary
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What are the Primary Characteristics of accounting information
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Relevance-must be available before it loses its relevance
Reliability-Information must be free from error and basis |
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What makes information relevant?
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it must be
a. timely b. predictive value c. feedback value |
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Define timely
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relevant inforamtion must be available before it loses its relevance
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Define predictive value
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Information must aid users ability to assess and predict the outcome(s) of events
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Define feedback value
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Information must aid users in their assessment of previous outcomes
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What components make information reliable?
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They must have
a. validity b. verifability c. neutrality |
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Define validity
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Information must measure the economic event that it says it measures
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Define verifiability
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Information must be able to be confirmed as being accurate
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Define neutrality
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information must be unbiased
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What characteristics make up secondary characteristics?
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1. Comparability-Information can be compared to information from other businesses.
2. Consistency-Information can be compared across time periods |
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What do the elements of financial statements define?
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What items are included in a full set of financial statements
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What are the elements on a balance sheet
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assets
liabilities equities |
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Define assets
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Economic resources used by a business in the production of revenue
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Define liabilities
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Obligations of a business to provide assets or services sometime in the future
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Define equities
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Owner's residual interest in a business
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What are the 2 types of equities?
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a. Contributed Capital (Common Stock)
b. Retained Earnings |
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Define Contributed Capital (Common Stock)
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Portion of assets contributed to a business by its owners
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Define retained earnings
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portion of assets resulting from the operations of a business that are retained in the business
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Give an example of retained earnings
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Distributions (Dividends)
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Define distributions (dividends)
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Transfers of wealth from a business to its owners
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Define Contributed Capital (Common Stock)
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Portion of assets contributed to a business by its owners
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Define retained earnings
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Portion of assets resulting from the operations of a business that are retained in the business
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