Flashcards in Accrual Accounting Deck (17):
What does the composition of GAAP include?
Principles, methods and procedures that are generally accepted by the accounting profession.
What is the sole source of authority of GAAP for nongovernmental entities?
FASB. All guidance carries the same level of authority (one level of GAAP) there is no longer a hierarchy of GAAP
What is the codification of GAAP?
A newly structured electronic form. It does not change GAAP. It is a compilation and reorganization of existing GAAP with updates being added as they happen.
How is the material organized in the codification of GAAP?
By major area and topic
What does the codification not include?
1.) other comprehensive basis of accounting
2.) cash basis
3.) income tax basis
4.) regulatory accounting principles
What if there is no guidance in the codification?
Authoritative GAAP for similar transactions should be considered before considering no authoritative.
What sources are included in non-authoritative GAAP?
1.) widely organized and prevalent practices
2.) FASB concepts statements
3.) AICPA issues papers
No implied hierarchy
What basis of accounting does GAAP cover?
Why is the accrual basis preferred over cash basis
It reflects a better association of revenues and expenses with the appropriate accounting period
What is created when cash is received before revenue earned?
Deferred revenue - liability
Examples: rent, subscriptions, gift certificates
What type of account is created when cash is paid before expense is incurred?
Deferred expense - assets
Examples - prepaid insurance, supplies, rent
The general purpose external financial report has what components?
1.) income statement
2.) statement of comprehensive income
3.) balance sheet
4.) statement of changes in shareholders equity
5.) statement of cash flows
6.) footnote disclosures and supplementary schedules
7.) auditors opinion
How to go from accrual to cash basis?
Increase in A/R - subtraction
Increase in unearned revenue - add
Decrease in accrued expense - subtract
Increase in prepaid expense - subtract
Signs will be opposite if you are asked to go from Cash to Accrual
What is the accrual Basis of accounting?
Recognized and reports the economic activities of the firm in the period the activity was incurred, regardless of when the cash activity takes place.
What type of account is created when an economic event occurs before cash is received?
An accrual account. You are accruing the cash to be received or to be paid)
What is the formula to convert from accrual to cash basis?
Change in Cash=Change in Liabilities+Change in Equity minus Change in other assets. (Accounting equation with assets broken into two categories)