This Concepts Statement is one of a series of Concepts Statements that the Governmental Accounting Standard Board (GASB) has issued or will issue. These Concepts Statements are intended to provide a conceptual framework of interrelated objectives and fundamental concepts that can be used as a basis for establishing consistent financial reporting standards.
Concepts Statements identify the objectives and fundamental principles of financial reporting that can be applied to address numerous financial accounting and reporting issues. They provide the GASB with the basic conceptual foundation for considering the merits of alternative approaches to financial reporting and help the GASB develop well-reasoned financial reporting standards. These Statements also assist preparers, auditors, and users in better understanding the fundamental concepts underlying financial reporting standards. Concepts Statements are not used to prescribe the financial reporting standards that apply to a particular item or event.
This Concepts Statement establishes definitions for the seven elements of historically based financial statements of state and local governments. Elements are the fundamental components of financial statements. The elements of a statement of financial position are defined as follows:
These definitions are primarily based upon the inherent characteristics of each element. Central to most of these definitions is a resource, which in the governmental context is an item that can be drawn on to provide services to the citizenry. These definitions apply to an entity that is a governmental unit (that is, a legal entity) and are applicable to any measurement focus under which financial statements may be prepared.
This Concepts Statement improves financial reporting by defining some of the most central terms used in GASB pronouncements, which will enhance consistency in future standards setting. These defined terms include deferred outflows of resources and deferred inflows of resources, which will, for example, allow for better presentation of interperiod equity in certain financial statements. This Concepts Statement also may benefit preparers and auditors when evaluating transactions, in certain cases, for which there are no existing standards. Financial statement users also may benefit from understanding these definitions that identify the items and events that should be reported as specific elements of financial statements.
Term T or F Companies consider only quantitative factors in determining whether an item is material. | | Definition |
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Term T or F Revenues, gains, and distributions to owners all increase equity. | | Definition |
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Term T or F The conceptual framework for accounting has been discovered through empirical research. | | Definition |
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Term T or F The economic entity assumption means that economic activity can be identified with a particular legal entity | | Definition |
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Term T or F The IASB has issued a conceptual framework that is broadly consistent with that of the United States. | | Definition |
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Term T or F Users of financial statements are assumed to have no knowledge of business and financial accounting matters by financial statement preparers. | | Definition |
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Term T or F Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. | | Definition |
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Term T or F Revenues are realizable when assets received or held are readily convertible into cash or claims to cash. | | Definition |
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Term T or F Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements. | | Definition |
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Term T or F The first level of the conceptual framework identifies the recognition and measurement concepts used in establishing accounting standards. | | Definition False Recognition and measuremetn are the 3rd level | |
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Term T or F The idea of consistency does not mean that companies cannot switch from one accounting method to another. | | Definition |
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Term T or F A conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards. | | Definition |
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Term According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of | | Definition Relevance, Yes; Reliability, No | |
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Term A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle? | | Definition |
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Term Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between | | Definition timeliness and verifiability. | |
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Term During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of | | Definition . Objectivity, No; Periodicity, Yes | |
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Term Financial information exhibits the characteristic of consistency when | | Definition accounting entities give accountable events the same accounting treatment from period to period. | |
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Term Information is neutral if it | | Definition is free from bias toward a predetermined result. | |
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Term Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting? | | Definition |
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Term The accounting principle of matching is best demonstrated by | | Definition associating effort (expense) with accomplishment (revenue). | |
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Term The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the | | Definition |
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Term The overriding criterion by which accounting information can be judged is that of | | Definition usefulness for decision making. | |
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Term Valuing assets at their liquidation values rather than their cost is inconsistent with the | | Definition historical cost principle. | |
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Term What is a primary objective of financial reporting as indicated in the conceptual framework? | | Definition Provide information that is helpful to present and potential investors, creditors, and other users in assessing the amounts, timing, and uncertainty of future cash flows. | |
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Term What is a primary objective of financial reporting as indicated in the conceptual framework? | | Definition Provide information that is helpful to present and potential investors, creditors, and other users in assessing the amounts, timing, and uncertainty of future cash flows. | |
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Term | Definition When in doubt, recognizing the option that is least likely to overstate assets and income. | |
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Term When products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash" is a definition of | | Definition |
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Term Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price? | | Definition |
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Term Which basic assumption may not be followed when a firm in bankruptcy reports financial results? | | Definition Going concern assumption. | |
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Term Which of the following is not a basic assumption underlying the financial accounting structure? | | Definition Historical cost assumption.--Historical cost is a principal not an assumption | |
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Term Which of the following practices may not be an acceptable deviation from recognizing revenue at the point of sale? | | Definition A. Upon receipt of cash. B. During production. C. Upon receipt of order.<-------->D. End of production. | |
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Term Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles? | | Definition President's letter to shareholders. | |
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Term Which of the following elements of financial statements is not a component of compre-hensive income? | | Definition A. Revenues B. Distributions to owners <------>C. Losses D. Expenses | |
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Term According to Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability? | | Definition A. Materiality B. Understandability C. Usefulness D. All of these <---------<> | |
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Term According to the FASB conceptual framework, earnings | | Definition A. are the same as comprehensive income. B. exclude certain gains and losses that are included in comprehensive income. <----------->C. include certain gains and losses that are excluded from comprehensive income. D. include certain losses that are excluded from comprehensive income. | |
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Term Company A issuing its annual financial reports within one month of the end of the year is an example of which ingredient of primary quality of accounting information? | | Definition |
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Term A soundly developed conceptual framework of concepts and objectives should | | Definition A. increase financial statement users' understanding of and confidence in financial reporting. B. enhance comparability among companies' financial statements. C. allow new and emerging practical problems to be more quickly solved. D. all of these.<--------<> | |
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Term In the conceptual framework for financial reporting, what provides "the why"--the goals and purposes of accounting? | | Definition Objectives of financial reporting | |
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Term Issuance of common stock for cash affects which basic element of financial statements? | | Definition |
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Term Representational faithfulness is an ingredient of which primary quality of information? | | Definition |
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Term The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the | | Definition |
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Term The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is | | Definition |
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Term Valuing assets at their liquidation values rather than their cost is inconsistent with the | | Definition historical cost principle. | |
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Term Under Statement of Financial Accounting Concepts No. 5, which of the following, in the most precise sense, means the process of converting noncash resources and rights into cash or claims to cash? | | Definition |
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Term What is a purpose of having a conceptual framework? | | Definition A. To enable the profession to more quickly solve emerging practical problems. B. To provide a foundation from which to build more useful standards. C. Neither a nor b. D. Both a and b. <---------<> | |
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Term When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of | | Definition A. relevance. B. reliability. C. consistency. D. none of these. <-----> | |
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Term Which basic assumption is illustrated when a firm reports financial results on an annual basis? | | Definition |
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Term Which of the following is not a time when revenue may be recognized? | | Definition A. At time of sale B. At receipt of cash C. During production D. All of these are possible times of revenue recognition.<------------<> | |
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Term Which of the following is not a benefit associated with the FASB Conceptual Framework Project? | | Definition A. A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting. B. Practical problems should be more quickly solvable by reference to an existing conceptual framework. C. A coherent set of accounting standards and rules should result. D. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. <------<>
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Term Which of the following statements concerning the cost-benefit relationship is not true? | | Definition A. Business reporting should exclude information outside of management's expertise. B. Management should not be required to report information that would significantly harm the company's competitive position. C. Management should not be required to provide forecasted financial information. D. If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.<------<> | |
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Term Which of the following is a primary characteristic of useful accounting information? | | Definition |
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Term First level of the conceptual framework | | Definition |
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Term What are three objectives of the first level of the conceptputal framework? | | Definition 1. Useful to those making investment and credit decision, 2.Helpful to present and potential investors, creditors, and ohter users in assessing the amounts, timing and uncertainity of cash flows 3. aout the economic resources and the claims to those and the changes in them | |
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Term Second level of the conceptual framwork | | Definition 1.Qualitive characteristics of acconting information 2. the elements | |
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Term What are the two primary and two secondary charatisics | | Definition Primary- 1. Relavance a)Predictive b) feedback c) Timliness (2) Reliablilty a)verifibiltiy b)faithful Repenstation c) Neutlaity Secondary 3.Comparibilty 4. Consistency | |
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Term | Definition 1. Assets2.Liabliliies3. equity4. investment by owner5distribution to owners6. omprehensive income7. revenue8. Expenses9. Gains 10 losses | |
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Term What is the the third level of the conceptual framework | | Definition Recongition and measurement concepts: 1. Assumptions 2. Principals 3. Constraints | |
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Term what are the four assumptions | | Definition Economic entity assumptionGoing concern assumption monetary unit perdiocity assumption | |
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Term | Definition measurement- hisotric Cost principal, ecomonic enity principal, fair value principalRevenue recognition principal-a)when realized or realiable b)when earned Expense recognition principal-a) let the expense follow the revenue b) rational and systematic allocation Full disclosure principle-make a differnce in the decisions. | |
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Term | Definition 1.cost-benfit2. materiality3. industry practise 4. conservatism | |
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