Professional Documents
Culture Documents
18th
Edition
Financial
Reporting
Intermediate
Accounting
James D. Stice
Earl K. Stice
PowerPoint presented by Douglas Cloud
Professor Emeritus of Accounting, Pepperdine
University
2012 Cengage Learning
1-1
Definition of Accounting
Accounting is a service activity. Its
function is to provide quantitative
information, primarily financial in nature,
about economic entities that is intended to
be useful in making economic decisions
in making reasoned choices among
alternative courses of action.
Statement of the Accounting Principles Board No. 4, par. 40.
(continued)
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Definition of Accounting
Key features in this definition of accounting:
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1-6
External Investors
Creditors
Creditors need
need
information
information about
about the
the
profitability
profitability and
and
stability
stability of
of the
the
company
company to
to decide
decide
whether
whether to
to lend
lend
money
money to
to the
the
company
company and,
and, ifif so,
so,
what
what interest
interest rate
rate to
to
charge.
charge.
Investors
Investors (both
(both
existing
existing stockholders
stockholders
and
and potential
potential
investors)
investors) need
need
information
information
concerning
concerning the
the
safety
safety and
and
profitability
profitability of
of their
their
investment.
investment.
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General-Purpose Financial
Statements
The balance sheet reports, as of a
certain point in time, the resources
of a company (the assets), the
companys obligations (the
liabilities), and the equity of the
owners.
(continued)
1-8
General-Purpose Financial
Statements
The income statement reports, for a
certain interval, the net assets
generated through business
operations (revenues), the net assets
consumed (the expenses), and the
difference, which is called net
income.
(continued)
1-9
General-Purpose Financial
Statements
The statement of cash flows
reports, for a certain interval, the
amount of cash generated and
consumed by a company through
the following three types of
activities: operating, financing, and
investing activities.
(continued)
1-10
General-Purpose Financial
Statements
Accounting estimates and
judgments are outlined in the notes
to financial statements. In
addition, the notes contain
supplemental information as well as
information about items not
included in the financial statements.
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Auditors Role
The FASB
The FASB
The FASB
The FASB
(continued)
1-16
The FASB
The FASB
The FASB
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1934.
Its primary role is to regulate the issuance and
trading of securities by corporations to the
general public.
It requires companies to furnish various financial
statements, and other periodic information about
significant events.
The SEC requires companies to have their
external financial statements audited by
independent accountants.
(continued)
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What is GAAP?
Historically, the Auditing Standards Board
of the AICPA has defined Generally
Accepted Accounting Principles (GAAP)
in the context of a phrase included in the
standard auditors opinion:
present fairlyin conformity with generally
accepted accounting principles.
1-31
International Accounting
Standards Board
(continued)
1-32
International Accounting
Standards Board
International Accounting
Standards Board
Conceptual Framework
Concepts Statements
In February 2000, the FASB issued the last of
seven Statements of Financial Accounting
Concepts, which provide the basis for the
conceptual framework.
1) Objectives of Financial Reporting by
Business Enterprises
2) Qualitative Characteristics of Accounting
Information
3) Elements of Financial Statements of
Business Enterprises
(continued)
1-36
Concepts Statements
4) Objectives of Financial Reporting by
Nonbusiness Organizations
5) Recognition and Measurement in
Financial Statements of Business
Enterprises
6) Elements of Financial Statements (a
replacement of No. 3, broadened to
include not-for-profit as well as business
enterprises)
(continued)
1-37
Concepts Statements
7) Using Cash Flow Information and Present
Value in Accounting
(continued)
1-38
Concepts Statements
The seven Concepts Statements addressed
four major areas:
1. Objectives: What are the purposes of
financial reporting?
2. Qualitative characteristics: What are the
qualities of useful financial information?
3. Elements: What is an asset? a liability? a
revenue? an expense?
(continued)
1-39
Conceptual Framework
4. Recognition, measurement, and
reporting: How should the objectives,
qualities, and elements of definitions be
implemented?
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Recognition, Measurement,
and Reporting
(continued)
1-41
Recognition, Measurement,
and Reporting
Recognition, Measurement,
and Reporting
Five different measurement attributes are
currently used in practice.
1. Historical cost
2. Current replacement cost
3. Fair value
4. Net realizable value
5. Present (or discounted) value
(continued)
1-43
Recognition, Measurement,
and Reporting
ReportingIncluded in the recommended
set of general-purpose financial statements
are reports that show the following:
Financial position at the end of the period
Balance
Sheet
(continued)
1-44
Recognition, Measurement,
and Reporting
ReportingIncluded in the recommended
set of general-purpose financial statements
are reports that show the following:
Financial position at the end of the period
Earnings (net income) for the period
Income
Statement
(continued)
1-45
Recognition, Measurement,
and Reporting
ReportingIncluded in the recommended
set of general-purpose financial statements
are reports that show the following:
Financial position at the end of the period
Earnings (net income) for the period
Cash flows during the period
Statement of
cash flows
(continued)
1-46
Recognition, Measurement,
and Reporting
ReportingIncluded in the recommended
set of general-purpose financial statements
are reportsStatement
that showofthe following:
changes in
position
at the end of the period
Financialowners
equity
Earnings (net income) for the period
Cash flows during the period
Investments by and distributions to
owners during the period
(continued)
1-47
Recognition, Measurement,
and Reporting
ReportingIncluded in the recommended
set of general-purpose financial statements
are reports that show the following:
Financial position at the end of the period
Earnings (net income) for the period
Cash flows during the period
Investments by and distributions to
owners during the period
Comprehensive income (total non-owner
changes in equity) for the period
(continued)
1-48
Recognition, Measurement,
and Reporting
Traditional Assumptions of
the Accounting Model
The FASB conceptual framework is
influenced by five basic assumptions:
1. Economic entity
2. Going concern
3. Arms-length transactions
4. Stable monetary unit
5. Accounting period
(continued)
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The Importance of
Personal Ethics
Chapter 1
The
The End
End
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