Accounting > Study Notes > York UniversityACTG 3110Midterm Notes 3110 (All)

York UniversityACTG 3110Midterm Notes 3110

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Chapter Two: Accounting Judgments: - General body of accounting concepts consists of 3 different categories: o Underlying assumptions  Form the foundation upon which all accounting measurements rests ex. Accounting principle of going concern o Qualitative assumptions  Used to evaluate the possible measurement options and choose the most suitable method o Measurement methods  Various ways the financial position and results of operations are reported. Ex. Accounting principles of fair value and realizable value are examples of measurement methods, both are based on the underlying assumption of continuity - Measurement methods are how transactions and events are measured and reported; qualitative criteria are why they are measured, providing the underlying assumptions are valid - Ex. Historic cost is a measurement method in which assets are reported at their acquisition cost. Historical cost is mainly used because It is seen as being more verifiable (qualitative criteria), However, the use of historic cost depends on the reporting enterprise’s continuity as a functioning business (underlying assumption) Structure of accounting policy choice: - To construct fs for a company we must: o Consider the facts/constraints of the entity o Determine the objectives of financial reporting o Make sure the underlying assumptions are valid o Measure the elements of FS using situation-specific measurement methods that satisfy qualitative criteria o Prepare the FS Ethical professional judgment: - Accountants must act ethically and exercise judgment to be fair to all stakeholders Underlying Assumptions: - There are (1) universal assumptions (essential to making financial reports feasible and meaningful), (2) entity-specific assumptions that are very common but actually depend on an individual entity’s reporting circumstances - Universal Assumptions: o 1. Time period:  Meaningful information can be assembled and recorded for a time period that is less than the company’s lifespan  One year is the standard o 2. Separate entity:  The enterprise can be accounted for and reported independent of its owners and stakeholders  Personal and private transactions are seperated  Ex. An entity carried out as a corporation may be inseparable from its owner if it has a single shareholder who is the owner/manager and who mingles business and personal finances

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