Ebook - Intermediate Accounting - Chapter 2

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C H A P T E R

2

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
•1 •2 •3 •4

Describe the usefulness of a conceptual framework. Describe efforts to construct a conceptual framework. Understand the objective of financial reporting. Identify the qualitative characteristics of accounting information. Define the basic elements of financial statements.

•6 •7

Describe the basic assumptions of accounting. Explain the application of the basic principles of accounting. Describe the impact that constraints have on reporting accounting information.

•8

•5

What Is It?

Everyone agrees that accounting needs a framework—a conceptual framework, so to speak—that will help guide the development of standards. To understand the importance of developing this framework, let’s see how you would respond in the following two situations.

SITUATION 1: “Taking a Long Shot . . . ”
To supplement donations collected from its general community solicitation, Tri-Cities United Charities holds an Annual Lottery Sweepstakes. In this year’s sweepstakes, United Charities is offering a grand prize of $1,000,000 to a single winning ticket holder. A total of 10,000 tickets have been printed, and United Charities plans to sell all the tickets at a price of $150 each. Since its inception, the Sweepstakes has attracted area-wide interest, and United Charities has always been able to meet its sales target. However, in the unlikely event that it might fail to sell a sufficient number of tickets to cover the grand prize, United Charities has reserved the right to cancel the Sweepstakes and to refund the price of the tickets to holders. In recent years, a fairly active secondary market for tickets has developed. This year, buying–selling prices have varied between $75 and $95 before stabilizing at about $90. When…...

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