Income Stmt
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| Describe GAAP | Those accounting principles that have substantial authoritative support. Subs Auth Support is a questin of fact and a matter of judgment.
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| AICPA | took role of developer of GAAP in 1939 with formation of the Committee on Accounting Procedures and the Committee on Accounting Terminology. Issued ARBs, still an important source of GAAP.
Created APB (Accounting Principles Board) (1959-1972).
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| FASB | APB abolished and replaced by FASB-1972.
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| SFAS | Stmts of Fin. Acct Standrds. (FASB 1). Have the highest level of authority of GAAP. (BOSSII) provide principles/procedures on specific acctg issues. require extnsve resrch, memo, drafts, public comments, etc
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| Interpretations | (FASB 2) - provide clarification of previously issued statements, including APB opinions & ARBs. (BOSSII)
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| Technical Bulletins | (FASB 3) - provide guidance on accounting and reporting problems (category B)
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| Stmts of Financial Accounting Concepts | (FASB 4) - statements issued by FASB that provide theoretical foundation for GAAP, however stmts themselves not considered GAAP. "Other Accounting Literature", foundation of GAAP, basic reasoning of GAAP
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| Authority for Promulgation of GAAP | Rules of Conduct per AICPA that CPA cannot express opinion on FS if not in conformity with GAAP.. root of Code or Prof. Conduct (203). FASB stmts, ARBs & APB Opinions constitute accounting principles.
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| FASB Accounting Standards Codification | FASB 168,replaced hierarchy of sources of GAAP(162) as single source of authoritative accounting principles recognized by the FASB.
Assets, Liab, Equity, Rev, Exp, Presentation, Broad transactions, Industry. Contains Categories A-D.
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| Category A GAAP | pronouncements issues by authoritative entities. may include SEC if publicly traded company. contains BOSSII
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| BOSSII | AICPA Accounting Research Bulletins. Accounting Principles Board Opinions. Fin Acctg Standards Board FASB Stmts. FASB Staff Positions. FASB Interpretations. FASB Statemetns Implementation Issues.
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| Category B GAAP | FASB Technical Bullteins; AICPA Industry Audit and Accounting Guides (if cleared by FASB); AICPA Stmts of Position (if cleared by FASB)
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| Category C GAAP | AICPA Accounting Standards Executive Committee (AcSEC) Practice Bulletins (if cleared by FASB); Consensus positions of the FASB Emerging Issues Task Force; Topics discussed in Appendeix D of EITF Abstracts
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| Category D GAAP | AICPA Accounting Interpretations; FASB Implementation Guides (Q&A); Practices that are widely recognized and prevalent either generally or in industry; AICPA Industry Audit & ACcounting Guides (not cleared by FASB); AICPA Stmts of Position (not cleared..)
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| SFAC No. 1 - Objectives of Financial Reporting by Business Enterprises | Defines users as those who base their decisions on their relationships to and knowledge about the business enterprise. Includes external users- investors, creditors, customers.
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| Objectives of Financial Reporting | 1. information useful in investment and credit decisions. 2. information useful in assessing cash flow prospects. 3. information about enterprise resources, claims to those resources, and changes in them.
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| SFAC 2 Qualitative Characteristics of Accounting Information | A. Central Role of Decision Making (leads to choice that produces most useful information) . B. A Hierarchy of Accounting Qualities
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| Hierarchy of Accounting Qualities - (HAQ) | 1. Understandability 2. Decision Usefulness 3. Primary Qualities 4. Secondary Characteristics 5. Constraints
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| HAQ - 1. Understandability | governed by user characteristics and the characteristics inherent in information. serves as link b/w characteristics of users and decision-specific qualities of information
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| HAQ - 2. Decision Usefulness | consists of 3 qualities - relevance, reliability, & comparability
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| HAQ - 3. Primary Qualities | a. Relevance - 1. predictive value 2. feedback value 3. timeliness
b. reliability - 1. neutrality 2. repr. faithfulness (validity) 3. verifiability
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| HAQ - 4. Secondary Characteristics | 1. comparability 2. consistency
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| HAQ - 5. Constraints | a. Materiality - magnitude of an omission or misstatement
b. costs and benefits
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| Summary of Significant Accounting Policies (pg 37). tell items included and not included | included: principles & methods, criteria, policies, pricing.
not included: composition of accts, amts in dollars of acct balances, details relating to changes in accounting principles, dates of maturity and amounts of LT debt, yearly computation of depr
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| treatment of antitrust legal case loss treatment of workers strike loss | extraordinary if it doesn't happen often (ie first ever case)
disclosed as component of income from continuing operations - not extraordinary
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| Comprehensive disclosure rules | -may be shown on face of a combined 'stmt of income & compr income' a separate sect below NI, or: 1. in a separate 'stmt of compr income, or 2. as a component of stmt of changes of owners equity
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| When/how is extraordinary gain recorded? | entire extraordinary gain recorded in period incurred (not allocated throughout separate interims or quarters.
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| cumulative effect loss/gain | no recorded in interim's net income, recorded at beginning of YEAR retained earnings is restated
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| what are the general rules on reporting of a segment? | for it to be significant enough to report on, segment must be at least 10% of 1. combined revenues (whether intersegment or unaffiliated customers) 2. operating income, or 3. identifiable assets
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| more nuances of reporting a segment... | allocations for general operating costs and interest, etc should not be made solely for purposes of segment disclosures. the operating profit by segments is based on the measure of profit reported to the "chief operating decision maker"
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| deficits accumulated during development stage: start up/organizational costs: | reported as part of stockholder's equity
-expense immediately under GAAP
cumulative net losses, cumulative deficit (part of equity), cum. sales & exp (part of I/S), cum stmt of CF & suppl SE
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| Financial Capital | financial capital maintenance considered to be element of both "currently reported NI" & "Compr Income."
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| Change to the FIFO method from LIFO method: effect as of beginning of year | Accounting principle change (retrospective application effect on retained earnings) - the cumulative effect of a change in accting principle is shown on the stmt of retianed earnings as an adjmnt of the beginning balance of the earliest yr presented
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| Settlement of material litigation | Income from continuing operations-although likely an infrequent event, not considered unusual in nature
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| Prohibition of a product line by the government | Extraordinary item - deemed extraordinary event in a business - unusual in nature and happens infrequently.
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| Material gain on sale of a factory building | Income from continuing ops-rather infrequent, but not considered unusual in nature for a company to have this type of transaction
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| Change from double-declining balance to the straight line method of depr in first quarter: current year's effect | Income from continuing operations-considered change in accounting estimate effected by a change in accounting principle. Reported prospectively thru income from cont. ops.
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| Operations of a segment deemed "held for sale" | Discontinued operations - results of operations of a component of an entity will be reported in the discontinued operations section of the income stmt if component is deemed to have met all criteria for the "held for sale" classification
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| Loss from major strike by employees | Income from continuing operations-infrequent and likely material, but not considered extraordinary, as it is not unusual.
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| Revenue from a cancelled product line in women's clothing | Income from continuing operations-dress line in womens clothing would not qualify as a component so it cannot be a discontinued item.
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| how to define a component of a business in regard to discontinuing an operation | lowest level for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from rest of entity.
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| Change in estimated service life of an asset | Income from continuing operations - change in service life of an asset is a change in estimate, which is implemented in the current year and reported in the income from continuing operations section of I/S
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| Extinguishment of long-term debt, common management strategy for borrowing purposes | Income from continuing operations - common mgmt strategy of a company, transaction not deemed to be unusual.
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| Destruction of a warehouse by an earthquake in Wisconsin (state that rarely has earthquake) | Extraordinary item-unusual and infrequent event. loss from destruction of a warehouse (likely material) is reported in extraordinary items section
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| Material write-down of inventory - | income from continuing operations-infrequent, but not considered unusual in nature for a business
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| Loss on sale of a subsidiary | Discontinued operations-results reported in the discontinued operations section of I/S if component is a subsidiary that has already been sold
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| Multi setp I/S | freaking draw one
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