New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Practice Upload

by: Linsey Moen

Practice Upload MGT 300

Linsey Moen

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Practice Upload
Organization and Management Leadership iCourse
Dr. David Kim McKinnon
Class Notes
practice upload
25 ?




Popular in Organization and Management Leadership iCourse

Popular in Department

This 10 page Class Notes was uploaded by Linsey Moen on Monday September 19, 2016. The Class Notes belongs to MGT 300 at Arizona State University taught by Dr. David Kim McKinnon in Fall 2016. Since its upload, it has received 4 views.


Reviews for Practice Upload


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/19/16
CH 2 ­ Conceptual Framework  FASB’s conceptual framework serves as a foundation for giving you insights into the “what”, “why” and “how” of understanding financial statement elements and disclosures Conceptual Framework – Statements of Financial Accounting Concepts (SFAC) Broad concepts that are intended to establish useful & consistent standards.  (The Concept  Statements are NOT authoritative GAAP.)  This framework is used by FASB:  To develop a coherent set of standards and rules.  To solve new and emerging practical problems.  To prescribe the nature, function, and limits of financial accounting and  financial statements. The “Conceptual Framework” consists of (8) concept statements.   Provide users with the ability to:  1) Assess the amount timing and uncertainty of future cash  flows 2) Asses the company’s assets,  lib and equity  I. Understanding the Terminology Used in the Conceptual Framework A. QUALITATIVE CHARACTERISTICS – Distinguishes between “more useful” and “inferior”  information. 1.  “Primary” Qualities (what makes the info useful): Relevance: by knowing the information, it is capable of making a difference to the decision maker. Why we use   Predictive Value – more likely to correctly forecast future results “comparative”   Confirmatory Value (Feedback Value) – confirm or correct prior expectations. statements  Materiality – if by omitting or misstating the information, it would influence the decisions  of the user. (deciding if something is an asset or an expense)  Faithful Representation: the info must faithfully represent the events that actually happened  (substance over form.) all information is ethically correct  Complete ­ disclose all info necessary to understand the true economic impact of the event.  Neutral – without bias.  (Not weighted, emphasized, de­emphasized, etc. to favor one party  or another.)  Free from Error – Does NOT mean perfectly accurate; describe the process & limitations  for using estimates & no errors in “the process” of “using the best available information” 2.   Enhancing  Qualitative Characteristics:    Comparability – ability to compare with similar information reported by other entities and by  the same entity across time periods.  (Yr 1 – Yr 2 – Yr 3).  This quality includes consistency.  Verifiability – two independent parties using the same information would come to the same  conclusions…therefore it can be relied on  Timeliness – must report the information in a timely manner before it loses its value.  Understandability – understandable to users with reasonable financial knowledge &  willingness to study the information. II.  SFAC #6 – UNDERSTANDING THE BASIC ELEMENTS  Concept #6 defines the 10 elements that are directly related to measuring the performance and  financial position of a company. A. Statement of Financial Position – reported at a point in time a. ITEMS ON THE BALANCE SHEET 1.  Assets – resources owned by or owed to the entity that will generate  “probable” future economic benefits. 2.  Liabilities – probable future sacrifices to settle an obligation from past  transactions. Debt that the company owes  3.  Equity – the residual claims of owners. B. Earnings for the Period – reported over a period of time ITEMS ON THE INCOME STATEMENT  4.  Revenues – inflows of assets (cash or A/R), or the settlement of liabilities  (unearned revenue) as a result of performing services/delivering goods  from  on­going operations . 5.  Expenses – outflows of resources (expired costs) as a result of on­going  operations. 6.  Gains ­        Increases/decreases in equity due to incidental transactions     7.  Losses ­  C. Investments & Distributions to Owners – reported over a period of time 8.  Investments by Owners – increases in equity due to original investment  by owners. 9.  Distributions to Owners – decreases in equity due to dividends.    D. Comprehensive Income – reported over a period of time ABC Inc. invests in 1,000 shares of IBM  stock @ $10/share on Oct. 1 , 15’ and  10.  Comprehensive Income – all other changes in equity except those  intends to hold for long term. At Dec. 31, 2015 IBM stock is trading  resulting from Investments by Owners (#8 above) and Distributions to  Owners (#9 above). = NET INCOME OF CURRENT YEAR +/­ OCI $15/share. Orig Cost = $10,000 Includes Net Income of current year and (4) “Other Comprehensive  Fair Value = $15,000 DEC 31 BALANCE SHEET Income” items (OCI): Assets 1) “ Unrealized” (Holding) Gains/Losses from AFS(Available for Sale  Invest – AFS               $10,000 DR Securities)­stocks and bonds +Fair Value Adj.            $5,000 DR Invest @ Fair Value      $15,000 DR 2) Translation Adjustments on Foreign Currency Adj Entry: DR Fair Value Adj: 5,000         CR “Unreal” Gain AFS 5,000 3) Pension Liability Adjustments 4) Unrealized Gains/Losses from Hedging Transactions III. SFAC #5 ­ ASSUMPTIONS, PRINCIPLES & CONSTRAINTS Sets forth recognition & measurement criteria on what should be contained in financial  Deferral: Unearned Rev.  statements.  (Includes Assumptions, Principles & Constraints) Any kind of pre­payment.  A. Assumptions: 1. Economic Entity Assumption – the owner and the business are separate  & distinct entities.  Furthermore, it means that all economic activities of an  entity can be identified with one accountable unit (i.e. the Parent Company  is responsible for reporting the aggregated results of all of its subsidiaries) Consolidated Income Stmnt: Income Statement from all subsidiaries  2. Going Concern Assumption ­the company will continue to operate into  the foreseeable future. If we are a “Going Concern” we report a  “Classified” Bal. Sheet (Current Assets and Long­Term Assets; CL  &LT Debt). Report Plant, Property and Equip at Historical cost, NOT  fair value or liquidation value. Report PP&E at Book  Value(BV)=Original Cost – Accum Dep. 3. Monetary Unit Assumption ­ financial statements are reported in the U.S. Dollar and the dollar is considered to be stable 4. Periodicity (Time Period) Assumption – a company must report their  results before the information loses its value (i.e. quarterly, annually) Example:    For each situation, explain which underlying assumption supports this  accounting practice. a. Consolidating financial statements from several divisions of a parent  company to create the 10K Report:  Economic Entity Assumption  ____________________________________________ b.  ABC Company reports fixed assets at historical cost and depreciates  them: Going Concern Assumption _____________________________________________ B. (4) Principles: 1. Measurement Principle – (2) most common measurements are based on Historical Cost  or Fair Value.  Therefore, this is called a “mixed attribute” model a. Historical Cost – report assets/liabilities based on the original acquisition  cost.  (Things such as PP&E because there’s no intent of selling and we want  the most accurate and not subjective assessment of cost) Advantage – Objective, reliable, and Verifiable b. Fair Value – the current cash equivalent value. (i.e. What a willing party  would pay TODAY as of the balance sheet date.) The price that would be  received to sell an asset or paid to transfer a liability on the measurement date  Advantage ­ RELEVANT but can be more subjective With the increased use of Fair Value, FASB has introduced a Fair Value Hierarchy to increase consistency & transparency of objectivity/subjectivity. Must disclose what level you used to  come up with the Fair Value Most Reliable    Level I ­ Observable inputs, quoted market prices for identical units, active markets.    Level II – Observable inputs other than quoted market prices  Most UnreliableLevel III – Unobservable inputs.  Relies on company’s own data or assumptions. However, that does not mean that all assets and liabilities are on the books at historical cost  or Fair Value. To maximize relevance & representational faithfulness, some modifications  are required.  U.S. GAAP uses a “Mixed Attribute” model.   A/R  $100,000 Examples of “Mixed Attribute” measurements: (­) Allow (2,000) A/R  Report @ Net Realizable Value (NRV)    Doubt Acct  Apple sells iPhone for 600.  2. Revenue Recognition Principle – states when revenue should be recognized.  The timing Apple promises to provide  of when revenue is recognized is a key element to correctly measuring income. two years of software  When a company agrees to perform a service or sell a product to a customer, it has a  updates.  performance obligation.  When the company satisfies the performance obligation (i.e.  Apple determines that 80%  of their costs is associated  delivers the goods or performs the service), it recognizes revenue.  The Revenue  with the phone. 20%  Recognition Principle requires companies to recognize revenue in the accounting period Associated with the  in which the performance obligation is satisfied. software.  Point of sale  Over time as goods delivered/service performed          2017 New Standard on Revenue Recognition (as of May 28, 2014; Effective after Dec 15, 2016): In applying the new Revenue Recognition model, an entity would: 1. Identify the contract with a customer.  willing buyer 2. Identify the separate performance obligations in the contract. (2. Provide phone and provide software) 3. Determine the transaction price. 600 4. Allocate the transaction price to the separate performance obligations in the contract. Phone – 80%(600) = $480 Recognized at sale Software – 20%(600) = $120 / 24 (because software updates go on for 2 years) = $5/month 5. Recognize revenue when each performance obligation is satisfied 3. Expense Recognition Principle (Matching Concept) ­ match revenues earned with  expenses incurred in same time period the expense helped to generate the revenue. Determines to how we measure earnings and the timing of asset and liability recognition.  Direct Matching ­ Assumes cause/effect relationship. (i.e. product costs ­ COGS) Sales commission, things w/ a direct correlation  Indirect Matching ­  applies a systematic & rational allocation of cost to expense   (i.e. Depreciation Expense) Straight – line depreciation   Immediate Recognition – some costs are incurred, but impossible to determine in  which period, if any, related revenues will occur.  Therefore expense in period  incurred (i.e. period costs such as advertising expense, research & development exp) Example: On Jan. 21, Sparky Electronics sells a 72” HD TV to a customer for $3,500 on account. The goods were delivered at the point of sale. The TV cost Sparky $1,000 when they purchased it from their supplier. Sparky will pay a 2% sales commission next month to the salesperson who assisted the customer. Sparky depreciates their building and fixtures at a rate of $700 per month. Additionally, for the month of January, Sparky incurred $500 for utilities. Income Statement For the month ended January 31, 2016 Revenue: $3,500 Direct Matching (-)COGS: ($1,000) Direct Matching (-)Sales Commission ($70) Direct Matching (-) Dep. Exp. ($700)  Indirect Matching (-) Utilities ($500)  Immediate Recognition 4.  Full Disclosure Principle – Simple set of foot notes explaining how you derived with  the cost that you reported. Such as if you use historical cost, or fair value. C. Constraints: Cost Constraint ­ Providing useful financial information is limited by a pervasive constraint on  financial reporting – “cost” should not exceed the “benefits” of a reporting practice.  *Industry Practice – exceptions to the basic rules for reporting financial information because of  unique circumstances in the industry as a whole.


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Kyle Maynard Purdue

"When you're taking detailed notes and trying to help everyone else out in the class, it really helps you learn and understand the I made $280 on my first study guide!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.