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MGAB01H3 Chapter Notes - Chapter 2: Financial Statement, Accounting, Money Market Fund

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peachsea-lion187
31 Jul 2011
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor
G.Quan Fun

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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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Document Summary

Conceptual framework of accounting: the elements that guides the development & application of accounting principles that maintain consistent standards. Consistent set of standards : ensures that existing standards are clear & consistent, makes it possible to respond quickly to new issues. Relevance: the ability to make a difference in users" decisions: relevant information allows to make predictions (predictive value), confirm/correct their previous expectations (feedback value), and influence decisions on time (timely) Faithful representation: the quality of describing information that shows economic reality. Ii: verifiable: people reviewing the information should reach similar conclusions, neutral: information cannot be presented to favour one set of users over another, complete: information needed to represent economic reality must be included. Comparability: describing accounting information to allow comparison between other companies: comparability: allows to see differences and similarities between companies, consistency: the act of using the same accounting treatment for similar events year to year.

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Related Questions

GAAP Application-Conceptual Framework of Accounting the ConceptualFramework allows for the systematic adaptation of accountingstandards to a changing business environment. The FASB uses theconceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depreciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole proprietor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability

19. What of the following is not consistent with the primary purpose of financial accounting? A. To provide the SEC audited financial statements on a quarterly and annual basis. B. To provide investors with relevant information to use in decision making. C. To provide financial institutions with information relevant to lending decisions. D. All of the above are consistent with the purpose of financial accounting.

As the FASB implemented its conceptual framework, it emphasizedrelevance and faithful representation (initially relevance andreliability). How does the choice of assets and liabilities as themost primary financial statement elements influence the trade-offbetween these two primary qualitative characteristics?