Increase in retained earnings from delivering goods or services to customers or clients.
Decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues.
Relevant – capable of making a difference in decisions (predictive value, feedback value, timely)
Reliable – free from significant error, has validity, can be relied on (verifiable, represents reality, unbiased)
Accounting draws a boundary around each organization to be accounted for. Separate business activities from owners’ activities
Accountants assume the business will continue operating for the foreseeable future.
Accounting information is expressed primarily in monetary terms that ignore the effects of inflation.
Ensures that accounting information is reported at regular intervals.
Accountants report items in the financial statements in a way that avoids overstating assets, owners’ equity, and revenues and avoids understating liabilities and expenses.
Accountants perform proper accounting for items that are significant to the company’s financial statements. This does not mean a transaction can be ignored, but that a company does not have to follow strict GAAP if the effect is immaterial.
Assets and services, revenues and expenses are recorded at their actual historical cost.
- Tells accountants when to record revenue (after it has been earned) & the amount to record (the cash value of what has been received)
- 4 criteria
- provide goods/services
- agreement for customers to pay
- amount is known
- it is likely they will pay
Directs accountants to (1) identify and measure all expenses incurred during the period and (2) match the expenses against the revenues earned during the period. The goal is to measure net income.
Businesses should use the same accounting methods from period to period.
A company’s financial statements should report enough information for outsiders to make informed decisions about the company.
§ International Financial Reporting Standards
§ As indicated within the title, theses standards are aimed at a global practice
§ Ultimately the goal is to achieve a single set of high-quality common accounting standards used around the world
§ As a general rule IFRS standards are more broad and principles based with limited interpretive guidance
§ US GAAP is more specific and rules based with far more “bright lines” comprehensive implementation guidance and industry interpretations
§ GAAP is monitored by the Financial accounting standards board (FASB)
§ IFRS is formulated by the International Accounting Standards Board (IASB)
§ The Roadmap sets forth several milestones and if achieved, they could result in mandatory use of IFRS in financial statements filed with the SEC by US issuers beginning in 2014, with early adoption permitted