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3 Other SFAC (SFAC No. 3 (Replaced by SFAC No.6 Elements of FS, Elements…
3 Other SFAC
SFAC No. 3
Replaced by SFAC No.6 Elements of FS
Elements of FS of a Business
SFAC No.4
Objectives of Financial Reporting
of Nonbusiness Organizations
Who
Characteristics
Resources from contribution and grants
Purpose other than profit
Lacks ownership
Government
Non-profit
Users
Resource providers
Beneficiaries
Regulators
Managers
What
Information useful in...
Assessing ability to provide services
Resource allocation
Assessing management performance
SFAC No.5
Recognition and Measurement in FS
Statements of
Financial position
Balance Sheet
Financial Risk
Earnings
Performance
Operating risk
Comprehensive income
PUFE
Cash flows
Changes in owner's equity
Why equity go up or down?
Fundamental Recognition Criteria
How
Meets FS element definitions
Asset
Liability
Equity
Revenue
Expense
Record and classify with Journal entries
Measurability
Reliable amount
Assets and Liability measurements
Historical cost
PP&E
Current cost
Inventory
Replacement cost
Net realizable value
A/R
Current Market value
Stocks
Trading (TS)
Available for Sale (AFS)
Present value of future cash flows
Bonds and notes
Relevance
Reliability
Fundamental Assumptions and Principles
Assumptions
Entity
Separate
Personal
Divisions
Corporation
Going Concern
Monetary Unit
Assume currency do not change over time
Periodicity
divided into meaningful periods
Quarters and years
Principles
Measurement
Accrual Accounting
Revenue Recognition
When obligation is done and transferred to customer
Earned
Expense Recognition
Matches period revenue was made
Incurred
Systematic and rational
Depreciation expense
Recording without exchange of cash
Full Disclosure
SFAC No. 6
Elements of Financial Statments
Balance Sheet
(ALE)
Assets
probable future benefits
Liabilities
probable future sacrifices
Equity (Net Assets)
Equity from owners
(ID)
Distributions
Not expense
Decrease equity
Investments
Not revenue
Increase equity
Excluded from Comprehensive Income
Comprehensive Income
Do not include equity from owners
Net Income + Other Comprehensive Income (PUFE)
A - L = E
Income Statement
(REGL)
Normal operations
Expenses
COGS
SG&A
Depreciation
Revenue
Selling Inventory or Services
Nonoperating
Losses
Sold for less than BV
SP or NRV < BV
Gains
Sold for more than BV
SP or NRV > BV
Definitions
SP
Selling Price
NRV
Net Realizable Value
SP - Costs to sell
BV
Book Value
Examples
Non-inventory
PP&E
SFAC No. 7
Cash flow and Present Value in Measurements
Framework
When using future cash flows as measurement basis
Based on future cash flows only
Assets
Note receivable
Liability
Bonds
Fair Value Objective
If unable to get value from market, use present value
Present Value
5 Elements
Impacts
required returns
discount rates
Credit risk
Price for holding uncertainty
Other factors
Liquidity
Market changes
Time value of money
Timing
When payment is due? interest/principle
Estimates
the interest/principle
Two Approaches
Traditional
Under a contract
Fixed cash flows
Uses Interest rates
PV of Bonds
Known future payments
Expected Cash Flow
PV of warrenties
Don't use interest rates
Value Calc
Weighted average
1 more item...
Risk adjustments
2 more items...
Changes to estimates
Book a catch-up to match new estimate
No specific known payments
Liability measurement considerations
Cost to settle the liability
Extra costs to end liability
Credit standing of the company
Ability of company to pay back