Unit 6 GAAP Application-Conceptual Framework of Accounting The Conceptual Framework allows for the systematic adaptation of accounting standards to a changing business environment. The FASB uses the conceptual framework to aid in an organized and consistent development of new accounting standards. The conceptual framework outlines the objectives of financial reporting and the qualities of good accounting information, precisely defines commonly used terms such as asset and revenue, and provides guidance about appropriate recognition, measurement, and reporting. Understanding the terminology associated with the framework is imperative.
Match the numbered statements below with the lettered terms.
An answer (letter) may used more than once, and some terms require more than one answer (letter).
1. Key ingredients in quality of relevance.
2. Traditional assumptions that influence the FASB's conceptual framework.
3. The idea that information should represent what it purports to represent.
4. An important constraint relating to costs and benefits.
5. An example of conservatism
6. The availability of information when it is needed.
7. Recording an item in the accounting records.
8. Determines the threshold for recognition.
9. Implies consensus.
10. Transactions between independent parties.
b) Representational faithfulness
e) Time periods
j) Predictive value
k) Economic entity
l) Lower-of-cost-or-market rule
n) Arm's-length transactions
Now that you have reviewed the terminology, for each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied. A letter may be used more than once, and more than one characteristic or concept may apply to a particular situation. Explain why you chose your answer.
1. Goodwill is recorded in the accounts only when it arises from the purchase of another entity at a price higher than the fair market value of the purchased entity's identifiable assets.
2. Land is valued at cost.
3. All payments out of petty cash are debited to Miscellaneous Expense.
4. Plant assets are classified separately as land or buildings, with an accumulated depre-ciation account for buildings.
5. Periodic payments of $1,500 per month for services of H. Hay, who is the sole propri-etor of the company, are reported as withdrawals.
6. Small tools used by a large manufacturing firm are^ recorded as expenses when purchased.
7. Investments in equity securities are initially recorded at cost.
8. A retail store estimates inventory rather than taking a complete physical count for purposes of preparing monthly financial statements.
9. A note describing the company's possible liability in a lawsuit is included with the financial statements even though no formal liability exists at the balance sheet date.
10. Depreciation on plant assets is consistently computed each year by the straight-line method.
d) Representational faithfulness
g) Going concern
h) Economic entity
i) Historical cost
Your tutorial is in Excel (attached). I also attached a diagram of the conceptual framework to help you get an idea of how these are all related.
Matching Exercise for audit terminology
Please see attached file.
PART II ? MATCHING
Instructions: Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once. Not all letters will be used.
A. Full disclosure principle
B. Internal control
C. Average cost method
D. Inventoriable costs
E. Last-in, first-out method
F. Matching principle
G. Conceptual framework
J. Monetary unit assumption
K. Nominal accounts
L. Periodic inventory system
M. Debit memorandum
N. Permanent accounts
O. Perpetual inventory system
R. Revenue expenditure
S. Revenue recognition principle
T. Economic entity assumption
U. Time period assumption
V. First-in, first-out method
___ 1. The principle that efforts be matched with accomplishments.
___ 2. Use of the same accounting principles and methods from period to period by the same business enterprise.
___ 3. A coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
___ 4. An inventory costing method which assumes that the latest units purchased are the first to be allocated to cost of goods sold.
___ 5. An assumption that economic events can be identified with a particular unit of accountability.
___ 6. A characteristic of information which means it is capable of making a difference in a decision.
___ 7. An assumption that the economic life of a business can be divided into artificial time periods.
___ 8. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
___ 9. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
___ 10. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.View Full Posting Details