Basic Principles
Items characterized by service potential or future economic benefit
What is an asset?
Outflows or other using up assets or incurrences of liabilities during a period from delivering or producing a goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations
What is an expense?
Also known as FASB
What is Financial Accounting Standards Board?
Accounting assumption that implies that a company can divide its economic activities into artificial time periods. These time periods vary, but the most common are monthly, quarterly, and yearly
What is periodicity assumption?
A concept that the accounting profession assumes as foundational for the financial accounting structure. Include: (1) economic entity; (2) going concern; (3) monetary unit; and (4) periodicity
What are the Basic Assumptions of Accounting?
Obligation to transfer resources arising from a past transaction
What is a liability?
Residual interest in the assets of the enterprise after deducting its liabilities
What is equity?
One of the parts in the third level of the conceptual framework. Includes: (1) measurement; (2) revenue recognition; (3) expense recognition; and (4) full disclosure
What are Basic Principles of Accounting?
Dictates that companies recognize revenue in the accounting period in which the performance obligation is satisfied
What is revenue recognition principle?
Dictates that recognition of expenses is related to net changes in assets and earning revenues, that is, “let the expense follow the revenues.”
What is expense recognition principle?
Inflows or other enhancements of assets in an entity or settlement of its liabilities by the enterprise to its owners
What is revenue?
Increases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners
What is a gain?
Dictates that in deciding what information to report, companies follow the general practice of providing information that is of sufficient importance to influence the judgment and decisions of an informed user
What is full disclosure principle?
Accounting assumption that a company will continue in operation for the foreseeable future. Only in situations in which liquidation appears imminent is the assumption inapplicable
What is going concern assumption?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (Part of Measurement Principle)
What is fair value?
Decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners
What is losses?
Inflows or other enhancement of assets of an entity or settlement of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute that the entity's ongoing major or central operations
What is revenue?
An accepted accounting principle that companies account for and report most assets and liabilities on the basis of acquisition price (Part of Measurement Principle)
What is historical cost?
An assumption that economic activity can be identified with a particular unit of accountability, by keeping an enterprise’s economic activity separate and distinct from that of its owners and any other business unit
What is economic entity assumption?
A set of disclosures in a company’s financial statements that further explain the items presented in the main body of the statements. Does not have to be quantifiable, nor does it need to qualify as an accounting element. They are considered an integral part of the statements
What are notes to financial statements?
Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners
What is comprehensive income?
Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. Distributions to owners decrease ownership interests (or equity) in an enterprise
What is distribution to owners?
Increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interest (or equity) in it
What are investments by owners?
Accounting assumption that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis
What is monetary unit assumption?
An accounting constraint that requires the costs of providing financial information be weighed against the benefits that can be derived from using it.
What is cost constraint?