1、LOGOAccounting English Financial Accounting桂林电子科技大学信科学院唐风帆(18877319004)Conceptual FrameworkvConceptual Framework is a theoretical guide to the practical issues,which plays importance roles to the professional career.Conceptual FrameworkvSFAC(Statements of Financial Accounting Concepts)issued by FASB
2、SFAC NO1:Objectives of Financial ReportingSFAC NO2:Qualitative Characteristics of Accounting informationSFAC NO3:Elements of Financial StatementsSFAC NO4:Recognition and Measurement of Elements SFAC 1:ObjectivesvObjectives:Decision Usefulness(1)Useful to make investment and credit decisions(2)Helpfu
3、l to assess the amounts,timing and uncertainty of future cash flow(3)About economic resources,the claims to those resources,and the changes of them(assume a level of competence on the part of users)SFAC 2-First Qualitative CharacteristicsvRelevance(relevant to decision making)For information to be r
4、elevant,it needs predictive value or feedback value,and presented on a timely basis.vReliability(reliable information)Representational faithfulness(information match what really existed)Verifiability(provable to be true)Neutrality(cannot select information to favor one over another)SFAC 2-Second Qua
5、litative CharacteristicsvComparability measure and report the different companies in a similar manner vConsistency A company can change methods,but it must first demonstrate that the newly adopted method is preferable to the old.SFAC:ElementsAssets:Probable future economic benefits obtained or contr
6、olled by a particular entity as a result of past transactions or events.Claims to assets come from two sources:Liabilities(outsider claims):economic obligations payable to outsiders/creditors.Owners equity(insider claims):assets hold by the owners of business.SFAC:ElementsAssets =Liabilities +Owners
7、 Equity(Economic Resources)=(Claims to Economic Resources)Balance Sheet(Statement of financial position):A snapshot of the companys financial position at a moment in time.SFAC:ElementsEventsAssetsliabilitiesEquityInvest$50000 to start the businessCash+50000Common Stock+500000Purchase equipment on ac
8、countEquipment+10000Accounts payable+10000Payment of cash dividendCash-4000Retained Earnings-40000Buy some productInventory+2000Cash -2000SFAC:ElementsRevenue:Increase in retained earnings from delivering goods or services to customer or clients.Expense:decrease in retained earnings that result from
9、 operations.If Revenues Expenses,net income/earnings/profitIf Revenues Expenses,net lossXXX earned net income of$870 million in 2012.Income statement(statement of Earnings)SFAC:ElementsEventsAssetsliabilitiesEquitySold of product(cost of$800)at the price of$1000Cash+1000Inventory-800Retained Earning
10、s+200Cash+1000Revenue_sales revenue+1000Inventory-800Expense_cost of sold+800SFAC 4-Recognition PrinciplesvHistorical Cost Principle report most assets and liabilities on the basis of acquisition price(historical cost)which equals fair value.In subsequent periods,historical cost(reliable)and fair va
11、lue(relevant)often diverge.vRevenue Recognition Principle Revenue recognition generally occurs when realized/realizable or eared.Realized:exchanged the products/servicesRealizable:Assets are readily convertible into cashEarned:Substantial accomplishment of production processSFAC 4-Recognition Princi
12、plesvMatching Principle Expenses be matched with revenues whenever it is reasonable and practicable to do so.vFull Disclosure PrincipleDisclose fully and completely all relevant data with the sufficient importance to influence the judgment.SFAC 4-Basic AssumptionsvEconomic Entity Assumption Separate
13、 owners and managers from company Separate subsidiary company from parent company vGoing Concern AssumptionAssume the company will have a long life.Depreciation and amortization policies are justifiable and appropriate only if we assume some permanence to the company.SFAC 4-Basic AssumptionsvMonetar
14、y Unit Assumption Money is the common basis for all accounting measurement.(The monetary unit is relevantsimpleuniversally understandableuseful)vPeriodicity AssumptionThe periodicity assumption implies that a company can divide its economic into artificial time periods(monthlyquarterly yearly)SFAC 4
15、ConstraintsvCost-Benefit Relationship Information is not free.The benefits of using information must surpass the cost of providing information.SFAC 4-ConstraintsvMateriality An item is material if its inclusion or omission would influence or change the judgment,otherwise immaterial.1.relative size(
16、quantitative factors)In practice,anything under 5%of net income is considered immaterial.COMPANY A COMPANY BIncome from operation$1,000,000$10,000Unusual gain$20,000$5,000Only company A can merge the unusual gain with the operation gain.SFAC 4-ConstraintsvMateriality An item is material if its inclu
17、sion or omission would influence or change the judgment,otherwise immaterial.(1)Relative size(quantitative factors)In practice,anything under 5%of net income is considered immaterial.(2)Importance(qualitative factors)Such a bride case or lawsuit(3)Separate or aggregate effectSuch as one subsidiaries
18、 gain$2 billion,another loss$1.5 billion SFAC 4-ConstraintsvIndustry Practices Some peculiar business requires departure from basic theory in certain cases,such a agricultural companies,public-utility companies.vConservatismWhen in doubt,choose the solution that will be least likely to overstate ass
19、ets and income.Lower-of cost-or-market approach in valuing inventories.Conceptual FrameworkvFor each item blow,indicate which category of elements it belongs to.1.Retained Earnings2.Sales3.Inventory4.Depreciation5.Loss on sale of equipment6.Interest payable7.Dividends8.Gain of sale of investment Con
20、ceptual FrameworkvIdentify which basic assumption of accounting is best described in each item below.1.The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.2.Solectron Corporation does not adjust amounts in its financial statements
21、for the effects of inflation.3.Walgreen Co.reports current and noncurrent classifications in its balance sheet.4.The economic activities of General Electric and its subsidiaries are merged for accounting purposes.Conceptual FrameworkvIdentify which basic principle of accounting is best described in
22、each item below.1.Norfolk reports revenue when it is eared instead of cash collected.2.Yahoo recognizes depreciation for a machine over 2-year period during which that machine is used.3.Oracle reports information about pending lawsuits in the notes.4.Eastman reports land at the amount paid to acquir
23、ed it,even though the estimated fair market value is greater.Conceptual FrameworkvWhat accounting constraints are illustrated by the items below?1.Zip Farms reports agricultural crops on its balance sheet at market value.2.Crimson does not accrue a contingent lawsuit gain of$6000.3.Wildcat does not
24、disclose any information in notes to the financial statements unless the value of the information to users exceeds the expense of gathering it.4.Sun Devil expenses the cost of wastebaskets in the year they are acquired.Conceptual FrameworkvDiscuss the appropriateness of the following entry?An order
25、for$61500 has received from a customer.This order was shipped on January 9,2013.The company made the following entry in 2012.So following entry is made:Accounts Receivable$61500 Sales$61500 Conceptual FrameworkvDiscuss the appropriateness of the following entry?The president of Fresh Horse used his
26、expense account to purchase a new car solely for personal use.So following entry is made:Miscellaneous Expense$29000 Cash$29000 Conceptual FrameworkvDiscuss the appropriateness of the following entry?Because of a fire sale,equipment obviously worth$20000 was acquired at a cost of$155000.So following
27、 entry is made:Equipment$20000 Cash$155000 Revenue$45000 Conceptual FrameworkvDiscuss the appropriateness of the following entry?Materials were purchased on January 1,2006 for$122000.On December 31,2006,the materials would have cost$141000.So following entry is made:Inventory$21000 Gain on inventories$21000
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