Flashcards in Ch 14 - Acct Principles and Report Standards VOCAB Deck (20):
Define accrual basis.
system of accounting by which all revenues and expenses are matched and reported on financial statements for the applicable period, regardless of when cash related to the transaction is received or paid.
Define conceptual framework.
basic framework developed by the FASB to provide conceptual guidelines for financial accounting and statements.
2. most important topics are explanations of qualitative features of financial statements, basic assumptions underlying statements, basic accounting principles, and modifying constraints
if alternative treatments of items are equal validity, the conservatism constraint suggests that the alternative resulting in lowest profit should be used.
Define cost-benefit test.
If accounting concepts suggest a particular accounting treatment for an item but it appears that the theoretically correct treatment would required an unreasonable amount of work, the accountant may analyze the benefits and costs of the preferred treatment to see if the benefit gained from its adoption is justified by the cost
Define full-disclosure principle.
all information that might affect the user's interpretation of the profitability and financial condition of a business should be disclosed
Define going concern assumption.
assumption that a business will continue to operate indefinitely
define historical cost basis principle.
principle that requires assets and services to be recorded at their cost at the time they are acquired and that, generally, long-term assets remain at historical costs in teh asset accounts
Define industry practice constraint.
in a few limited cases, the unusual operating characteristics of an industry, usually based on risk, special accounting principles, and procedures, have been developed.
2. These may not conform completely with GAAP for other industries.
Define matching principle.
concept that revenues and the costs incurred in earning those revenues should be matched in appropriate accounting periods.
Define materiality constraint.
In some cases, where an accounting item is deemed too small to affect a user's decisions, the "required" accounting may be ignored
Define monetary unit assumption.
It is assumed that only those items and events that can be measured in monetary terms are included in financial statements.
Inherent part of this assumption is that the monetary unit is stable.
Thus, assets purchased one year may be combined in accounts with those purchased in another year even though the dollars used in each year actually may have different purchasing power.
Define neutrality concept.
concept that info on financial statements cannot be selected or presented in a way to favor one set of interested parties over another.
Define periodicity of income assumption.
idea that economic activities of an entity can be divided logically and identified with specific time periods, such as year or quarter
Define private sector.
nongovernmental sector of society.
In accounting context, considered the business sector.
Represented in accounting rule-making process by financial Accounting Standards Board.
Define public sector.
represented in accounting rule-making process by Securities and Exchange Commission.
Necessary characteristics that must be present in financial statements if they are to be credible.
Realization of revenue takes place only when cash, a financial claim, or other consideration is received for sale of goods or services.
Define revenue recognition principle.
revenue is recognized when it has been earned and realized
Define separate economic entity assumption.
Concept that a business is separate from its owner and financial statements reflect the affairs of the business, not those of the owner.