Accounting principles

transcript

ACCOUNTING PRINCIPLES+ why you should care about them

Alan, Bowen, James and Linda present:

For Ms. Adridge’sBAT4M1

Accounting Class

[OVERVIEW]01

What is the conceptual framework of accounting?

Objectives, Qualitative characteristics, Elements & Criteria

Assumptions, Principles and ConstraintsThe foundation of accounting standards

International Financial Reporting Standards

It’s impact on accounting

Summary & Conclusion

End of chapter quiz

HOW DID ACCOUNTING STANDARDS ORIGINATE?

”It’s just a tradition that has been passed down

from century to century.

”It’s just a tradition that has been passed down

from century to century.

”A bunch of men in suits make arbitrary

decisions based on what they think is best.

”A bunch of men in suits make arbitrary

decisions based on what they think is best.

ACCOUNTING STANDARDS ARE

1. Constantly evolving

2. Based on the conceptual

framework of accounting

THE CONCEPTUAL FRAMEWORK

A set of basic rules and definitions that all

standard setters agree on.

THE CONCEPTUAL FRAMEWORK

1. The objective of financial accounting

2. Characteristics of effective financial statements

3. Elements of financial accounting

4. Measurement and recognition criteria

THE BREAKDOWN

Objective of financial accounting

“ Financial reports must communicate information that is useful to investors, creditors, and other users for resource

allocation decisions / management evaluation.”

THE BREAKDOWN

Objective of financial accounting

1. Economic resources, obligations and equity

2. Changes in the above

3. Economic performance

THE BREAKDOWN

Characteristics of accounting

1. Understandability2. Relevance3. Reliability4. Comparability

THE BREAKDOWN

Elements of accountingBasic terminology – what is an asset?

THE BREAKDOWN

Recognition and measurement criteria

Assumptions, principles and constraints

ADVANTAGES

1. Expedites decision making process

2. Ensures consistency of standards

ASSUMPTIONS

Create a foundation for the accounting process to

run on.Going Concern AssumptionMonetary Unit Assumption

Economic Entity AssumptionTime Period Assumption

ASSUMPTIONS

PRINCIPLES

Derived from the assumptions; they

explain how economic events should be

handled.Revenue Recognition / Matching

PrincipleCost Principle

Full Disclosure Principle

PRINCIPLES

Revenue Recognition Principle

1. Evidence of an arrangement2. Delivery has occurred

3. Seller’s price can be determined4. Collection is reasonably certain

PRINCIPLES

1. At point of sale2. During production

3. Upon completion of production4. When cash is collected

PRINCIPLES

Matching Principle“Let the expense follow the revenue”

Basis for accumulation.

PRINCIPLES

Full Disclosure Principle1. Give supplementary detail

2. Explain unrecorded transactions3. Supply new information

PRINCIPLES

Cost Principle1. Trading / Available for sale securities

2. Merchandise inventory3. Long lived assets

PRINCIPLES

International Accounting Principles

IFRS (International Financial Reporting Standards)

CONSTRAINTS

Are licenses to bend accounting principles

1. Cost – Benefit Constraint2. Materiality Constraint

IN SUMMARY

The Conceptual Framework

1. OBJECTIVE

IN SUMMARY

1. OBJECTIVE

2. CHARACTERISTICS

IN SUMMARY

1. OBJECTIVE

2. CHARACTERISTICS

3. TERMINOLOGY

IN SUMMARY

1. OBJECTIVE

2. CHARACTERISTICS

3. TERMINOLOGY

4. CRITERIA

IN SUMMARY

1. CRITERIA

2. ASSUMPTIONS

3. PRINCIPLES

4. CONSTRAINTS

IN SUMMARY

Safe accounting practices

THANK YOU.

Accounting principles

Business