Generally Accepted Accounting Principles and Economic Benefit

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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. Substance 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

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
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...
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