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chap 7
Chapter 7-1 Accounting Principles Financial Accounting, Sixth Edition Chapter Chapter 7 7 Chapter Chapter 7 7 Chapter 7-2 1. Explain the meaning of GAAP and identify the key items of the conceptual framework. 2. Describe the basic objectives of financial reporting. 3. Discuss the qualitative characteristics of accounting information and elements of financial statements. 4. Identify the basic assumptions used by accountants. 5. Identify the basic principles of accounting. 6. Identify the two constraints in accounting. 7. Understand and analyze classified financial statements. 8. Explain the accounting principles used in international operations. Study Objectives Study Objectives Study Objectives Study Objectives Chapter 7-3 Accounting Principles Accounting Principles Accounting Principles Accounting Principles Monetary unit Monetary unit Economic Economic entity entity Time period Time period Going Going concern concern The The Conceptual Conceptual Framework of Framework of Accounting Accounting The The Conceptual Conceptual Framework of Framework of Accounting Accounting Assumptions Assumptions Assumptions Assumptions Principles Principles Principles Principles Constraints Constraints in in Accounting Accounting Constraints Constraints in in Accounting Accounting Statement Statement Presentation Presentation and Analysis and Analysis Statement Statement Presentation Presentation and Analysis and Analysis Objectives of Objectives of reporting reporting Qualitative Qualitative characteristics characteristics Elements of Elements of financial financial statements statements Operating Operating guidelines guidelines Revenue Revenue recognition recognition Matching Matching Full Full disclosure disclosure Cost Cost Materiality Materiality Conservatism Conservatism Summary of Summary of conceptual conceptual framework framework Classified Classified balance sheet balance sheet Classified Classified income income statement statement Analyzing Analyzing financial financial statements statements An international An international perspective perspective Chapter 7-4 Various users need financial information Various users need financial information The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. Financial Statements Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows Note Disclosure Financial Statements Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows Note Disclosure Generally Accepted Generally Accepted Accounting Accounting Principles (GAAP) Principles (GAAP) Generally Accepted Generally Accepted Accounting Accounting Principles (GAAP) Principles (GAAP) The Conceptual Framework of Accounting The Conceptual Framework of Accounting The Conceptual Framework of Accounting The Conceptual Framework of Accounting SO 1 Explain the meaning of GAAP and identify the SO 1 Explain the meaning of GAAP and identify the key items of the conceptual framework. key items of the conceptual framework. Chapter 7-5 Securities and Exchange Commission (SEC) http://www.fasb.org/ http://www.sec.gov/ The Conceptual Framework of Accounting The Conceptual Framework of Accounting The Conceptual Framework of Accounting The Conceptual Framework of Accounting Organizations Involved in Standard Setting: Financial Accounting Standards Board (FASB) SO 1 Explain the meaning of GAAP and identify the SO 1 Explain the meaning of GAAP and identify the key items of the conceptual framework. key items of the conceptual framework. Chapter 7-6 Conceptual Framework - “…a constitution, a coherent system of interrelated objectives and fundamentals.” FASB’s conceptual framework consists of the following: 1. Objectives of financial reporting. 2. Qualitative characteristics of accounting information. 3. Elements of financial statements. 4. Operating guidelines (assumptions, principles, and constraints). The Conceptual Framework of Accounting The Conceptual Framework of Accounting The Conceptual Framework of Accounting The Conceptual Framework of Accounting SO 1 Explain the meaning of GAAP and identify the SO 1 Explain the meaning of GAAP and identify the key items of the conceptual framework. key items of the conceptual framework. Chapter 7-7 a) a) To provide information that is useful to those making To provide information that is useful to those making investment and credit decisions. investment and credit decisions. a) a) To provide information that is useful to those making To provide information that is useful to those making investment and credit decisions. investment and credit decisions. b) b) Helpful in assessing future cash flows. Helpful in assessing future cash flows. b) b) Helpful in assessing future cash flows. Helpful in assessing future cash flows. c) c) Identify the economic resources (assets), the claims to Identify the economic resources (assets), the claims to those resources (liabilities), and the changes in those those resources (liabilities), and the changes in those resources and claims. resources and claims. c) c) Identify the economic resources (assets), the claims to Identify the economic resources (assets), the claims to those resources (liabilities), and the changes in those those resources (liabilities), and the changes in those resources and claims. resources and claims. Conceptual Framework Conceptual Framework Conceptual Framework Conceptual Framework Objectives of Financial Reporting SO 2 Describe the basic objectives of financial reporting. SO 2 Describe the basic objectives of financial reporting. Chapter 7-8 According to the FASB conceptual framework, the According to the FASB conceptual framework, the objectives of financial reporting for business objectives of financial reporting for business enterprises are based on? enterprises are based on? a. a. Generally accepted accounting principles Generally accepted accounting principles b. b. Reporting on management’s stewardship. Reporting on management’s stewardship. c. c. The need for conservatism. The need for conservatism. d. d. The needs of the users of the information. The needs of the users of the information. Conceptual Framework Conceptual Framework Conceptual Framework Conceptual Framework (CPA adapted) (CPA adapted) Review: Review: SO 2 Describe the basic objectives of financial reporting. SO 2 Describe the basic objectives of financial reporting. Chapter 7-9 Question: How does a company choose an acceptable accounting method, the amount and types of information to disclose, and the format in which to present it? SO 3 Discuss the qualitative characteristics of accounting SO 3 Discuss the qualitative characteristics of accounting information and elements of financial statements. information and elements of financial statements. Answer: By determining which alternative provides the most useful information for decision-making purposes (decision usefulness). Conceptual Framework Conceptual Framework Conceptual Framework Conceptual Framework Chapter 7-10 Relevance – making a difference in a decision. Predictive value Feedback value Timeliness Reliability Verifiable Representational faithfulness Neutral - free of error and bias Qualitative Characteristics Conceptual Framework Conceptual Framework Conceptual Framework Conceptual Framework SO 3 Discuss the qualitative characteristics of accounting SO 3 Discuss the qualitative characteristics of accounting information and elements of financial statements. information and elements of financial statements. . Chapter 7- 1 Accounting Principles Financial Accounting, Sixth Edition Chapter Chapter 7 7 Chapter Chapter 7 7 Chapter 7- 2 1. Explain the. statements. Chapter 7- 15 Operating Guidelines Conceptual Framework Conceptual Framework Conceptual Framework Conceptual Framework Chapter 7- 16 Assumptions