Professional Documents
Culture Documents
At the first level, the objective identify the goal and the purpose of the accounting. Statment
of financial Accounting Concept No.1 ( objective Of Financial Reporting by Business
Enterprises) present the goal and the purposes of accounting for business enterprises.
Statment of Financial Accounting Concepts No.4 (Objective of Financial Reporting by
Nonbusiness Organization) present the goal and puposes of accounting for nonbusiness
organization.
At the second level, the fundamental include the qualitative caharacteristic of accounting
information (Statment of Financial Accounting Concept No. 2) and the definition of the
eement of financial statments (Statement of Financial Accounting Concepts No.3). In
summary the five statment of financial accounting concept issued relating to financial
reporting for business enterprice are :
SFAC No.1 : Objective of Financial Reporting Business Enterprises, wich present the goal
and puposes of accounting.
SFAC No. 2 : Qualitative Characteristic of Accounting Information, wich examines the
characteristic that make accounting information usefull.
SFAC No. 3 : Element of Financial Statements of Business Enterprise, wich provides
definition of items in financial statements, suc as asset s, liabilities, rvenue and expense.
Financial reporting should provide information about the economic resource of an enterprise,
the claims to those resource, and the effect of transaction, events, and sircumstance that
change resources and claim to those resources. (Paragraph 40)
Financial reporting should provide information about an enterprises financial
performanceduring a period. (Paragraph 42)
The primary focus of financial reporting is informaion about an enterprises performance
provideed by measures of earning and its components (Paragraph 43)
Fianancial reporting should provide information abaou how an enterprse obtain and spend
cash, about its borowing and repayment borowing, about its capital transaction, including
cash dividends and the otehr distributions of enterprise resource to owner, and about other
factor that may affect an enterprises liquidity or solvency (Paragraph 49)
Fianacial reporting should provide information about how management of an enterprise has
discharged its stewardship responsibility to owner (Paragraph 50)
Financial reporting should provide information that is useful to managers and director in
making decisions in the interest of owners (Paragraph 52)
The objective of financial reporting by nonbusiness organization
Nonbusiness organization differ from business organization in at least two respect.
Nonbusiness organization :
1. Have no indicator of performance comparable to business enterprisess profit
2. Generally are not subject to the test of copetition in market.
Three major distinguishing characteristic of nonbusiness organization are :
1. Significant amount of resources are recived from source providers, who do not expect
to recive either repayment or economic benefits proportionate to the resources they
provided.
2. The business operates primarily for puposes other than the provision of goods or
service at a profit or profit equivalen.
3. There are no defined ownership interest that can be sold, transfered, or redeemed, or
that would convey entitlement to ashare of residual distribution of resource in the
event of liquidation of the organization.
Four particular groups are especially interested in the information provided by the financial
reporting of nonbusiness organization :
1. The source providers : lender, suplliers, employees, taxpayers, membeer and
contributors.
2. The constituents who use an dthe benefit from the services rendered by the
organization.
3. The governing and overseeing bodies responsible for setting policies and overseeing
and appraising the managers of nonbusiness organization.
4. The managers of nonbusiness organization.
6.3.5 Fundamental Concepts
The fundamental concepts incude both qualitative characteristic of accounting information
and the definition of the elements of financial statements.
The qualitative caharacteristic of accounting information
The FASB issued statement of Financial Accounting Concept No. 2, Qualitative
Characteristic of Accounting Information, to provide criteria for chosing between :
1. Alternative accounting and reporting method; and
2. Diclosure requirements.
The basic elements of financial statements of business enterprises
Statment of Financial Accounting Concepts No.3, Element of Financial Statement of Bisiness
Enterprises, defines ten interrelatted elements that directly related to measuring the
performace and status of an enterprise : asset, liabilities, equity, investment by owner,
distributios to owner, coprehensive income, revenue, expenses, gain, and losses. These
element are defined as follows:
Asset : probable future economic benefits obtained or controlled by a particular entity as a
result of past transaction or events
Liabilities : probable future sacrifeces economic obtained or controlled by a particular entity
as a result of past transaction or events.
Equity : residual interest in the asset of an entity that remains after deducting its liabilities.
Investment by owner : increase in the net of asset that result from transfer by owner.
Distributionns to owner : decrease in the net of asset that result from from transfer to owner.
Comprehensive income : the change in the equity (net assets) of an entity during a given
period that result from transaction and the otehr events and sircumstance from nowner
sources.
Revenue : inflow or other enhancements of the asset of an entity or the settlement of liability
Expenses : outflow or other ussing-up of the asset of an entity or the incurrence of liability
Gains : increase in equity (net assets) from the transaction that happen in one accounting
periodic
Losses : decrease in equity (net assets) from the transaction that happen in one accounting
periodic