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55 Cards in this Set

  • Front
  • Back

First Level of Conceptual Framework

Basic Objectives (what is useful?)

Second Level

Qualitative Characteristics and Elements

Qualitative Characteristics

Relevance, Faithful representation, and Enhancing Qualities. (REF)


Predictive Value, Confirmatory, and Materiality


Faithful Representation

Completeness, Neutrality, and free from error


Enhancing Qualities

Verifiability, Comparability, Understanding, and Timeliness (VCUT)


Assets, Liabilities, Equity, Investment by owners, distribution by owners, comprehensive income, revenues, expenses, gains, losses

Third Level

Assumptions, Principles, Constraints



Periodicity, Going Concern, Economic Entity, Monetary Unit (PGEM)


Measurement, Expense Recognition, Revenue Recognition, Full Disclosure (MERF)


Cost Constraint


Making a difference in a decision

predictive value

value as an input to predictive processes used by investors


omitting or misstating could influence decisions

Faithful representation

numbers and descriptions match what really existed


all information that is necessary is provided


company cannot select information to favor one party over another

Free from error

free from error


when independent measures, using the same methods, obtain the same results


Information that is measured and reported in a similar manner for different companies


quality of information that lets reasonably informed users see its significance

Moment in Time (Basic Elements)

Assets, Liability, and Equity

Period Time

Investment by owners, distribution to owners, comprehensive income, revenue, expenses, gains, losses

Economic Entity

company keeps its activity separate from its owners and other businesses

Going Concern

Company to last long enough to fulfill objectives and commitments

Monetary Unit

Money is the common denominator


Company can divide its economic activities into time periods

Measurement principle

Historical cost and fair value

Historical cost

record cost when you bought it

Fair value

what its worth today

Revenue Recognition

requires that companies recognize revenue in the accounting period in which performance is satisfied

Expense Recognition

Expense follows revenues

Product costs

Material, labor, overhead, direct relationship between cost and revenue, and recognize in period of revenue

Period costs

Salaries, administrative costs, no direct relationship between cost and revenue, recognize expense as incurred

Cost Constraint

cost of providing information must be weighed against the benefits that can be derived from using it

Conceptual Framework

we need an established body of concepts

7 Statements of Financial Accounting

SFAC Nos. 1,2,3,5,6,7,8

SFAC No. 1

presents the goals and purposes of accounting superseded by SFAC No. 8

SFAC No. 2

examines the characteristics that make accounting information useful

superseded by SFAC no. 8

SFAC no. 3

Provides definitions of items in financial statements, such as Assets, liabilities, revenues, and expenses

SFAC No. 5

Sets forth fundamental recognition and measurement criteria and guidance on what information should be formally incorporated into financial statements

SFAC No. 6

Replaces SFAC. No 3, includes non-profit organizations

SFAC No. 7

provides a framework for using expected future cash flows and present values as a basis for measurement

SFAC No. 8

replaces SFAC No. 1 and 2

"Why" purpose of accounting

First Level: Basic Objective

Forms bridge between the "why" and the "how"

Second Level: Fundamental Concepts

Investments by owners

increases net assets

Distribution by owners

decreases the net assets

comprehensive income

change in net assets from non-owner sources


increase in equity incidentally


decrease in equity incidentally

Economic entity assumption

a company keeps its activity separate and distinct from its owners

Going Concern

Company will have a long life, use depreciation and amortization

Full Disclosure

financial reports reflects a series of trade-offs

Full disclosure

sufficient detail, sufficient condensation, keeping in mind costs of preparing