Generally Accepted Accounting Principles and Economic Benefit Essays

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Two underlying assumptions of financial accunting: accrual basis and going concern
Characteristics:
1. undersetandability, 2. relevance a. materiality 3. reliability b. Faithful reperesentation c. Substan ce over form d. Free from bias e. Conservatism f. completeness 4. comparability relevant: accounting information should assist user to make, confirm or correct predictions about the outcomes of past, present or future events – it is relevant if it has potential to affect the decision making of user of the financial report. Depends on materiality (nature and magnitude) reliability : faithful reresentation, substance over form, neutrality (free from bias), conservatism (caution etimates on uncertainity) , complete its usually a trade off between relevance and reliability
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example: historical cost (reliable, not really relevant) vs fair value (rekevance, not very reliable) of land price after 20 years.
Asset: controlled by entitiy, future economic benefit through use or exchange, from past transsactions/event. FEB: sell, rent, occupy, run
Recognised : in financial statement, disclosed: in the notes
Asset is recognised when it is probable and reliably meassured.
Example1: a storage warehouse purchase for cash:
Essential characteristics: has feb, can be controlled, and as a result from past transaction
Recognition criteria: probable and can be meassured reliably
Recognised
Example 2: highly specialised machine
Essential characteristics: has FEB, has control and result of previous transaction
Recognition: probable and can be meassured reliably
Recognised
Example 3: new artificial sweetener that company has developed but requires govt approval essential: has FEB, has control and result from past transactions recognition: can meassure cost but may or may not be probable (?) thus not recognised but disclosed
Liabliities: present obligation from past event, expected an outflow of economic benefit in the future
Recognised if: probable and can be meassured reliably
Example 1: Christmas bonus to be paid to staff when such a bonus is not part of the employment

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