Lecture Intermediate accounting, (12th Edition): Chapter 2 - Kieso, Weygandt, Warfield

Chapter 2 - Conceptual framework underlying financial accounting. After studying this chapter, you should be able to: Describe the usefulness of a conceptual framework, describe efforts to construct a conceptual framework, understand the objective of financial reporting, identify the qualitative characteristics of accounting information.

Prepared by Coby Harmon, University of California, Santa Barbara

First Level:

Basic Objectives

Second Level:

Fundamental Concepts

Second Level:

Fundamental Concepts

Third Level: Recognition and Measurement

Third Level: Recognition and Measurement

Basic assumptions Basic principles Constraints

Qualitative characteristics Basic elements

Conceptual Framework

Conceptual Framework

Chapter

2-5

Review:  

A conceptual framework underlying financial accounting is  important because it can lead to consistent standards and it  prescribes the nature, function, and limits of financial 

Chapter

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Review:  

A conceptual framework underlying financial accounting is  necessary because future accounting practice problems can be  solved by reference to the conceptual framework and a formal  standard­setting body will not be necessary.

Conceptual Framework

Conceptual Framework

LO 1  Describe the usefulness of a conceptual framework.

False

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

LO 2  Describe the FASB’s efforts to  construct a conceptual framework.

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

Relevance and Reliability

Relevance and Reliability

LO 4  Identify the qualitative 

characteristics of accounting  information.

Verifiable Representational faithfulness Neutral ­ free of error and bias

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

LO 4  Identify the qualitative 

characteristics of accounting  information.

Comparability and Consistency

Comparability and Consistency

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

Elements

Elements

LO 5  Define the basic elements of 

financial statements.

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Investment by owners Distribution to owners Comprehensive income Revenue

Expenses Gains Losses

LO 5  Define the basic elements of financial statements.

(a) (e)

Assets Liabilities Equity  Investment by owners Distribution to owners Comprehensive income Revenue

Expenses Gains  Losses

activities that constitute the  entity’s ongoing major or central  operations.

Expenses Gains  Losses

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(g)

Assets Liabilities Equity  Investment by owners Distribution to owners Comprehensive income Revenue

Expenses Gains  Losses

Economic  Entity

Third Level: Principles

LO 7  Explain the application of the basic principles of accounting.

Third Level: Principles

LO 7  Explain the application of the basic principles of accounting.

Full  Disclosure Historical Cost

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Copyright

Copyright