Mnemonics Flashcards
What are the fundamental qualitative characteristics?
(SFAC No. 8)
Relevance & Faithful
What does Relevance include?
Predict and confirm your material value . . . after you pass the CPA
- -Predictive Value – helps predict future outcomes
- -Confirmatory Value – helps provides feedback about evaluations previously made by others
- -Materiality – information is material if an omission or misstatement of the information could affect the decisions made by users based on financial information
What does Faithful include?
Completely Neutral is Free From Error
–Complete – includes all information necessary for the users to understand the reported economic event
• Includes primary Financial statements and Notes to FS
–Neutral – Free from bias in selection or presentation
–Free From Error – no material errors in the selection or application of the process used to produce reported financial information and that there are no errors or omissions in the descriptions of economic events
• does NOT require perfect accuracy
What are enhancing qualitative characteristics?
(CUT-V) Compare and Verify-in Time to Understand
Comparability
Understandability
Timeliness
Verifiability
Define the enhancing characteristics
Comparability – useful when it can be compared with similar info about other entities or from other time periods.
- -Helps identify similarities and differences among items
- -Consistency helps achieve comparability
- -Used for trend analysis
Verifiability - different knowledge and independent observers can reach a consensus that a particular depiction is faithfully represented
–Does NOT require complete agreement
Timeliness - available to users in time to be capable of influencing their decisions
Understandability - information presented clearly and concisely
What are the elements of financial statements?
SFAC No. 6
REGL ALE NEEDS ID
What are the balance sheet elements?
Balance Sheet (Assets - Liabilities = Equity)
A - Assets: Probable future economic benefit
L - Liabilities: Probable future sacrifices of economic benefits
E - Equity: Residual interest in the assets of the company that remains after deducting the liabilities
What elements are Excluded from Comprehensive Income?
I - Investments by Owners: Increases in the equity of an entity resulting from transfers of cash, property or services from owners
-NOT revenue
-NOT on the Income Statement
D – Distributions to Owners: Decreases in the equity resulting from transfers of cash, property, or services, or the incurrence of liability to owners
-NOT an Expense
-NOT on the Income Statement
What are the income statement elements?
Income Statement
R - Revenues (Operating): Inflows or enhancements of assets, or settlements of liabilities from delivering goods or services as PART OF NORMAL OPERATIONS
-Amount recognized is the GROSS AMOUNT (less discounts and returns)
E - Expenses (Operating): Outflows or uses of assets, or incurrences of liabilities from delivering good or services as PART OF NORMAL OPERATIONS
-Examples: COGS, SG&A, Depreciation, etc.
G - Gains (non-operating): Increases in equity from peripheral transactions and other events, EXCEPT revenues and investments from owners
-Selling Price or NRV > Book Value
-NRV = Selling Price – Cost to Sell
L - Losses (non-operating): Decreases in equity from peripheral transactions and other events, EXCEPT expenses and distributions to owners
-Selling Price or NRV < Book Value
What is the approach to recognizing revenue?
The 5 step approach(I-STAR)
I am a STAR when I recognize revenue
What is the “I” in revenue recognition?
I - Identify the contract with the customer: Must be identifiable and enforceable
- All parties have approved and committed to perform
- Rights of each party are identified
- Payment terms can be identified
- Has commercial substance
- Collection is probable
What is the “S” in revenue recognition?
S - Separate Performance Obligations Identified: the deliverables, items/services you are going to do
- Performance Obligation – promise to transfer a good or service to a customer
- Rule of conservatism applied
- Do NOT recognize revenue until it has been done
- Separately Identifiable – recognized when each obligation has been satisfied
What is the “T” in revenue recognition?
T - Transaction Price Determined: the price that an entity can expect to be entitled to receive in exchange for transferring promised goods/services
-Include: bonuses, penalties, discounts, time value of money (Variable Consideration), Significant Financing,
Non-cash Consideration, Consideration payable to customer
What is the “A” in revenue recognition?
A - Allocate Transaction Price: Allocate the money to the stuff you are going to do
- Done when there is MORE THAN 1 performance obligation
- Allocated based on Stand-Alone prices on a pro-rata basis
- Allocate bonuses for specific obligations for those separately
What is the “R” in revenue recognition?
R - Recognize Revenue: Two options (1) Point in time (2) Over time
- For each separate performance obligation, as it is satisfied and transferred to the customer (customer obtains control)
- Control – ability to obtain benefits from and direct usage of the asset while also preventing other entities from obtaining benefits and directing usage
Method of Recognizing Revenue
- Output Method – units produced/delivered
- Input Method – Efforts/resources put in
