Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 2: Question 2CE (page 73)

Briefly describe how the organization of the FASB Codification corresponds to the elements of financial statements.

Short Answer

Expert verified

The FASB Codification is strongly connected with the components of financial statements attached to the Conceptual Framework. It is clear when looking at the “Browse section” format, which has a principal interface for assets, liabilities, equity, revenues as well as expenses.

Step by step solution

01

Meaning of Financial Statements

The primary purpose of a financial statement is to aid the decision-making process and enable users to make rational investment, lending and credit, and other similar financial decisions, which will also help them estimate future cash flows as well as assess the risks of potential bankruptcy.

02

Correspondence of the FASB Codification to the elements of financial statements

The organization of the FASB Codification is identical to the aspects of financial statements as defined in the Conceptual Framework. It reflects the assets, liabilities, equity, revenues, and expenses, which are the key elements defined in the Conceptual Framework.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Three expense recognition methods (associating cause and effect, systematic and rational allocation, and immediate recognition) were discussed in the text under the expense recognition principle. Indicate the basic nature of each of these expense recognition methods and give two examples of each.

The treasurer of Landowska Co. has that conservatism is a doctrine that is followed in accounting and, therefore, proposes that several policies be followed that are conservative in nature. State your opinion with respect to each of the policies listed.

  1. The company gives a 2-year warranty to its customers on all products sold. The estimated warranty costs incurred from this year’s sales should be entered as an expense this year instead of an expense in the period in the future when the warranty is made good.
  2. When sales are made on account, there is always uncertainty about whether the accounts are collectible. Therefore, the treasurer recommends recording the sale when the cash is received from the customers.
  3. A personal liability lawsuit is pending against the company. The treasurer believes there is an even chance that the company will lose the suit and have to pay damages of \(200,000 to \)300,000. The treasurer recommends that a loss be recorded and a liability created in the amount of $300,000.

What is the distinction between comparability and consistency?

CA2-7 (Expense Recognition Principle) Accountants try to prepare income statements that are as accurate as possible. A basic requirement in preparing accurate income statements is to record costs and revenues properly. Proper recognition of costs and revenues requires that costs resulting from typical business operations be recognized in the period in which they expired.

Instructions

(a) List three criteria that can be used to determine whether such costs should appear as charges in the income statement for the current period

.(b) As generally presented in financial statements, the following items or procedures have been criticized as improperly recognizing costs. Briefly discuss each Item from the viewpoint of matching costs with revenues and suggest corrective or alternative means of presenting the financial information.

(1) Receiving and handling costs.

(2) Cash discounts on purchases.

Discuss whether the changes described in each of the cases below require recognition in the CPA’s audit report as to consistency. (Assume that the amounts are material).

  1. The company changed its inventory method to FIFO from weighted-average, which had been used in prior years.
  2. The company disposed of one of the two subsidiaries that had been included in its consolidated statements for prior years.
  3. The estimated remaining useful life of plant property was reduced because of obsolescence.
See all solutions

Recommended explanations on Business Studies Textbooks

Corporate Finance

Read Explanation

Intermediate Accounting

Read Explanation

Business Development

Read Explanation

Human Resources

Read Explanation

Strategic Direction

Read Explanation

Operational Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free