Below are eight of the ten elements of financialaccounting and their definitions from Stat
Below are eight of the ten elements of financialaccounting and their definitions from Statement of FinancialAccounting Concepts (SFAC) 6, Elements of FinancialStatements. You can find more on these by looking at SFAC 6 atfasb.org, or clicking on the link to the Concepts Statements foundon the homepage of the FASB ASC. Read the followingcarefully. Failure to follow instructions will negatively impactyour grade.
— Assets are probable future economic benefitsobtained or controlled by a particular entity
as a result of past transactions or events.
— Liabilities are probable future sacrifices ofeconomic benefits arising from present
obligations of a particular entity to transfer assets or provideservices to other entities in
the future as a result of past transactions or events.
— Equity or net assets is the residual interestin the assets of an entity that remains after
deducting its liabilities. In a business enterprise, the equityis the ownership interest. In a
not-for-profit organization, which has no ownership interest inthe same sense as a
business enterprise, net assets is divided into three classesbased on the presence or
absence of donor-imposed restrictions—permanently restricted,temporarily restricted, and
unrestricted net assets.
— Comprehensive income is the change in equityof a business enterprise during a period
from transactions and other events and circumstances fromnonowner sources. It includes
all changes in equity during a period except those resultingfrom investments by owners
and distributions to owners.
— Revenues are inflows or other enhancements ofassets of an entity or settlements of its
liabilities (or a combination of both) from delivering orproducing goods, rendering
services, or other activities that constitute the entity'songoing major or central operations.
— Expenses are outflows or other using up ofassets or incurrences of liabilities (or a
combination of both) from delivering or producing goods,rendering services, or carrying
out other activities that constitute the entity's ongoing majoror central operations.
— Gains are increases in equity (net assets)from peripheral or incidental transactions of an
entity and from all other transactions and other events andcircumstances affecting the
entity except those that result from revenues or investments byowners.
— Losses are decreases in equity (net assets)from peripheral or incidental transactions of an
entity and from all other transactions and other events andcircumstances affecting the
entity except those that result from expenses or distributionsto owners.
REQUIRED: Your assignment is to choosetwo of these eight terms (each one you choose is worth 30points), search the FASB ASC for these terms, and discusshow they meet the substance of the above definitions. You shouldhave two or more paragraphs for each of the terms. The firstparagraph is the FASB ASC section (be sure to show the term youchose, and the ASC section number as shown below). Then cut andpaste the ASC section as shown below. Your second (or more)paragraph is your explanation of how the definition is applied inthe ASC. You should discuss how it meets the substance of theelement that you chose. You can also discuss alternative accountingtreatments if appropriate, and anything else related to the elementthat illustrates your knowledge of the item that you choose. Ican’t stress enough the importance of your supporting paragraph(s)– this is where you will earn the majority of your points.Do not use the Glossary in the ASC as an answer, and do notuse the terms if they are found in not-for-profit entity citations.Do not refer toIFRS.
Below is an example of the term “asset.” You cannot use thisexample in any of your answers.
720-35-05-3 Other Expenses, Advertising Costs, Overview andBackground
(Instructor’s Note: This paragraph below is directlyfrom the FASB ASC)
The following are some of the reasons that costs incurred inanticipation of the probable future economic benefits ofadvertising generally are expensed:
a. Financial statement preparers generally presumed that thebenefit period is short.
b. The periods during which the future economic benefitsprobably would be received and the amounts of such benefits couldnot be measured and determined easily and objectively.
c. The advertising costs for some entities were notmaterial.
d. Advertising is undertaken to provide or increase futureeconomic benefits.
(Now you write your paragraph(s).)
The above section of the FASB ASC deals with the expensing ofadvertising costs even if there is a probable future economicbenefit. The probable future economic benefit would be generated byincreased sales (revenues) which would generate the asset cash (orreceivables). Note that the ASC states “costs incurred” which meansthat the past transaction or event has already occurred.
Theoretically, advertising that has not yet been released (ontelevision, radio, in print, etc.) is an asset because its’ futureeconomic benefit has not yet been realized. But due to thedifficulty of matching the advertising expense with the expectedincrease in sales (revenue) in the proper period, along with themateriality of the cost the ASC allows for immediately expensingthe advertising costs when incurred. Expensing the advertising costversus capitalizing (debiting a prepaid asset account, e.g.,prepaid advertising) is assumed not to make a difference to theusers of financial statements’ decision making. Decision usefulnessis a qualitative characteristic of accounting information discussedin SFAC 8. In addition, consistently expensing the advertisingcosts each period will allow the users of financial statements tohave better comparability between (among) periods. Comparability isan enhancing quality of relevance and faithful representation alsodiscussed in SFAC 8.
The accounting for advertising costs in this manner parallel’saccounting for other items that have theoretical justification forcapitalization yet are treated as an expense. Examples includeresearch and development costs, start-up costs of an organization,and initial net operating losses.
Etc., etc., etc.
Notice how I expanded the discussion outside the topic byintroducing alternative treatment of advertising cost, similaritems, and even discussed Statement of Financial Accounting Concept8,
The Objective of General Purpose Financial Reporting andQualitative Characteristics of Useful Financial Information(which replaced SFAC No. 1 and No. 2). But do not force othertopics in your discussion unless they are relevant to yourcitation.
I do not expect you to find the exact definition in the ASC.Remember that I am only looking for the ASC to imply the substanceof the definition. There is really no one correct answer, but thereare good answers and better answers. To have a betteranswer (1) your citation should have the essence of the definitionof the element, and, (2) you must show in your second (or more)paragraph how you believe the ASC pertains to the definition of theelement (term). As a graduate student your second paragraph is veryimportant because it shows me your knowledge of financialaccounting. Most points for the Assignment are earned (not earned)by what is written in the second paragraph. Your grade will also bebased on your writing style.
Please be sure to put your name on the first page – you do notneed to submit a cover sheet. Start each element that you choose ona new page. Please submit the Assignment in Word and useTimes New Roman font 12, 1.15 spacing between lines, with normalleft- and right-side margins. There are no minimum numberof pages per question, however, do not write more than two pagesper element. The only restriction is that you must do it on yourown. If you have any questions please feel free to contact me. GoodLuck
PART TWO – 40 Points (5 Points Each)
Instructions: Answer the following questions using the FASB ASC.You do not have to write any more than the answer to thequestions.
1. As of May 31, 2015, what is the most recent AccountingStandard Update (ASU) issued? Give the name and number (e.g.,Accounting for Assets, 2015-1).
2. As of May 31, 2015, how many ASUs have been issued in2015?
3. Excluding proposed ASUs, how many Exposure Documents areoutstanding from the years 2013 – 2015 inclusive, as of May 31,2015?
4. What is the name of the most recent Statement of FinancialAccounting Concept (Concept Statement) issued, and what is the dateof the issuance? Which, if any, Statement(s) of FinancialAccounting Concepts did it replace?
5. How many proposed ASUs are outstanding as of May 31, 2015,including any EITFs (Emerging Issues Task Force updates) from theyears 2013 – May 31, 2015?
6. In what year did the online ASC become GAAP?
7. What was the name and number of the last Statement ofFinancial Accounting Standard (pre-codification standard) issuedbefore the ASC became GAAP? What is the significance of thisStandard?
8. When the ASC took effect the FASB allowed for “grandfatheredguidance,” original standards or portions of standards that willstill be effective (authoritative) after the implementation date ofthe ASC. What is the citation (e.g. 000-00-00-0) where examples ofthese standards are given in the ASC? (NOTE: Do not give examplesof the grandfathered standards just give the citation that liststheexamples.)