Intermediate Accounting-Chapter 2.pptVIP

Review: LO 4 Identify the qualitative characteristics of accounting information. Adherence to the concept of consistency requires that the same accounting principles be applied to similar transactions for a minimum of five years before any change in principle is adopted. Second Level: Qualitative Characteristics Assets Liabilities Equity Investment by owners Distribution to owners Comprehensive income Revenue Expenses Gains Losses Second Level: Basic Elements Exercise 2-3: Identify the element or elements associated with items below. (i) Residual interest in the net assets of the enterprise. (j) Increases assets through sale of product. (k) Decreases assets by purchasing the company’s own stock. (l) Changes in equity during the period, except those from investments by owners and distributions to owners. LO 5 Elements Review: Second Level: Basic Elements According to the FASB conceptual framework, an entity’s revenue may result from A decrease in an asset from primary operations. An increase in an asset from incidental transactions. An increase in a liability from incidental transactions. A decrease in a liability from primary operations. LO 5 Define the basic elements of financial statements. (CPA adapted) Third Level: Assumptions LO 6 Describe the basic assumptions of accounting. Brief Exercise 2-4: Identify which basic assumption of accounting is best described in each item below. The economic activities of KC Corporation are divided into 12-month periods for the purpose of issuing annual reports. (b) Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation. (c) Walgreen Co. reports current and noncurrent classifications in its balance sheet. (d) The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes. Third Level: Principles LO 7 Explain the application of the basic principles of accounting. Brief Exercise 2-5: Identify which basic principl