Accounting principles
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Transcript of Accounting principles
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ACCOUNTING PRINCIPLES+ why you should care about them
Alan, Bowen, James and Linda present:
For Ms. Adridge’sBAT4M1
Accounting Class
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[OVERVIEW]01
02
03
04
05
What is the conceptual framework of accounting?
Objectives, Qualitative characteristics, Elements & Criteria
Assumptions, Principles and ConstraintsThe foundation of accounting standards
International Financial Reporting Standards
It’s impact on accounting
Summary & Conclusion
End of chapter quiz
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HOW DID ACCOUNTING STANDARDS ORIGINATE?
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”It’s just a tradition that has been passed down
from century to century.
“
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”It’s just a tradition that has been passed down
from century to century.
“
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”A bunch of men in suits make arbitrary
decisions based on what they think is best.
“
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”A bunch of men in suits make arbitrary
decisions based on what they think is best.
“
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ACCOUNTING STANDARDS ARE
1. Constantly evolving
2. Based on the conceptual
framework of accounting
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THE CONCEPTUAL FRAMEWORK
A set of basic rules and definitions that all
standard setters agree on.
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THE CONCEPTUAL FRAMEWORK
1. The objective of financial accounting
2. Characteristics of effective financial statements
3. Elements of financial accounting
4. Measurement and recognition criteria
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THE BREAKDOWN
Objective of financial accounting
“ Financial reports must communicate information that is useful to investors, creditors, and other users for resource
allocation decisions / management evaluation.”
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THE BREAKDOWN
Objective of financial accounting
1. Economic resources, obligations and equity
2. Changes in the above
3. Economic performance
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THE BREAKDOWN
Characteristics of accounting
1. Understandability2. Relevance3. Reliability4. Comparability
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THE BREAKDOWN
Elements of accountingBasic terminology – what is an asset?
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THE BREAKDOWN
Recognition and measurement criteria
Assumptions, principles and constraints
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ADVANTAGES
1. Expedites decision making process
2. Ensures consistency of standards
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ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
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ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
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ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
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ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
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ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
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PRINCIPLES
Derived from the assumptions; they
explain how economic events should be
handled.Revenue Recognition / Matching
PrincipleCost Principle
Full Disclosure Principle
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PRINCIPLES
Revenue Recognition Principle
1. Evidence of an arrangement2. Delivery has occurred
3. Seller’s price can be determined4. Collection is reasonably certain
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PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
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PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
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PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
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PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
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PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
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PRINCIPLES
Matching Principle“Let the expense follow the revenue”
Basis for accumulation.
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PRINCIPLES
Full Disclosure Principle1. Give supplementary detail
2. Explain unrecorded transactions3. Supply new information
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PRINCIPLES
Cost Principle1. Trading / Available for sale securities
2. Merchandise inventory3. Long lived assets
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PRINCIPLES
International Accounting Principles
IFRS (International Financial Reporting Standards)
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CONSTRAINTS
Are licenses to bend accounting principles
1. Cost – Benefit Constraint2. Materiality Constraint
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IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
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IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
2. CHARACTERISTICS
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IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
2. CHARACTERISTICS
3. TERMINOLOGY
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IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
2. CHARACTERISTICS
3. TERMINOLOGY
4. CRITERIA
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IN SUMMARY
The Conceptual Framework
1. CRITERIA
2. ASSUMPTIONS
3. PRINCIPLES
4. CONSTRAINTS
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IN SUMMARY
The Conceptual Framework
Safe accounting practices
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THANK YOU.