Fundamental of Accounting & Conceptual Framework
Accounting Universe
Accounting Principles =► Accounting Standards =►Accounting books =► Financial Statements
Accounting Principles
Accrual Principle and Matching Principle
Expenses are recorded in the period in which the benefit is received, regardless of when the cash is paid out.
Income is recognized when the service or product is provided, irrespective of when the cash is received.
Monetary Principle
Only events that can be denoted in monetary value should be recorded in the financial statements.
Periodicity Principle
Periodicity principle requires that an entity´s file be divided into artificial periods for reporting purposes, such as months, quarters, or years.
Conservatism Principle
According to Conservatism or the Prudence Principle, all estimated losses should be recorded before they occur, while estimated gains should not be recorded.
Going Concern Principle
Going Concern Principle assumes that a business will continue to operate indefinitely, and assets are not intended to be liquidated in the near term.
Accountings Standards
Rules and guidelines set by regulatory bodies to standardize the way financial transactions are recorded and reported.
Type of Accounting Standards
►US Generally Accepted Accounting Principles (US GAAP)
►Internacional Financial Reporting Standards (IFRS)
- Accounting Books
- Journals
- Ledgers
- Trial Balance
Financial Statements
- Income Statement
- Statement of Comprehensive Income
- Balance Sheet
- Cash Flow Statement
- Statement of Changes in Equity
- Notes to Accounts
Accounting Process
Journals =► Ledger =► Unadjusted Trial Banace =►Record adjusting Journal Entries =►Adjusted Trial balance =► Financial Statements
Double Entry Accounting System
Double-Entry Accounting System requires that for every Financial Transaction, there must be an equal and opposite effect in at least two different accounts.
Assets = Liabilities + Equity
Debits = Credits
In the Double-Entry System, transactions are recorded as Debits and Credits.
| Account Type | Balance Type | Increase | Decrease |
| Assets | Debit | Debit | Credit |
| Liabilities & Equity | Credit | Credit | Debit |
| Income & Gains | Credit | Credit | Debit |
| Expenses & Losses | Debit | Debit | Credit |
Authoritative and Non-Authoritative Sources of GAAP
Authoritative GAAP: Accounting Standards Codification (ASC)
Non-Authoritative GAAP:
- SFAC (Statement of Financial Accounting Concept)
- AICPA Industry and Audit Guides
- AICPA Statements of Positions
- (1934)
- SEC – Securities and Exchange Commission (The authority that Set the GGAP) Let that regulate the mayor part of time to the professional, the public have his regulates.
- CAP – Committee an Accounting Procedure
- APB – Accounting Principles Board
- FASB – Financial Accounting Standards Aboard
- International Accounting Standards Board
- US GAAP – Financial Accounting Standards Codification (If is not part of the codification isn’t GAAP)
- PCC – Private company council (Was create for improve the GAAP standards and do the EEFF more relevant and less complexes)
| US | |
| SEC | $$$$$$$$ |
| FASB | IFRS Foundation (Developed in US) |
| GAAP | IFRS |
Standard Setting Process
- ╚►Identification of an Issue
- ╚►Add it to the agenda
- ╚►Discussion
- ╚►Research and Analysis
- ╚►Public Exposure
- ╚►Deliberation
- ╚►Revise the Draft
- ╚►Issuance of the Standard
- ╚►Integration into the ASC
- ╚►Implementation and Ongoing Support
- ╚►Post-Implementation Review.
Qualitative Characteristics of Useful Financial Information
Fundamental Qualitative Characteristics:
►Relevance:
- Predictive Value (if can be used)
- Confirmatory Value (if provide feedback about evolution)
- Materiality (could affect the decision)
►Faithful Representation
- Completeness
- Neutrality
- Freedom from Error
Enhancing Qualitative Characteristics
►Comparability
►Verifiability
►Timeliness
►Understandability
Conceptual Framework for financial Reporting (NOT GAAP)
SFAC – Statements of financial accounting concepts
RCAF:
- R: Relevant
- C: Cost constraint
- A: Potential Adverse Consequences
- F: Future-Oriented Information
Primary users (external) decision-making
Two Risk:
╚►Short-term liquidity
╚►Long-term solvency
Method of measurement:
- ►BV: Book value
- ►FMV: Realizable value
- ►NRV: Net Realizable Value
- ►PV: Present Value
