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Assets:probable future economic benefits obtained or controlled by entitities as a result

of past transactions or events. Liabilities:probable future sacrifices of economic benefits


arising from present obligation of a particular entitiy to transfer assets or provide services
to other entities in the future as a result of past transaction or events.recognition
criteria:1. Availability of legal basis 2. Aplicability of conservatism 3. Determinability of
economic substance 4. measurability. Contingent liabilities:1. Probable decline in asset
value 2. Liabilities are probable 3. The future event is porobable 4. The amount of
liabilities can reliably estimated Mirror Image –Both of the definitions are understood to
have mirrored each other, as it is seen from the definition. The probable future economic
result that is defined is in term of economic benefit, while it is defined as probable
existence of asset must be balance with liability. Treatment stages of liabilities: 1.
Measurement, 2. Tracing, 3. Satisfaction of liabilites. Homogeneity of costs: all the items
of expenses represented by costs produce revenue in comingling or joint manner.cost are
associated in revenue not in prefential order.implication:costs create revenue in
proportionate with the magnitude of the cost,the order of cogs,selling exp, and general
exp is not an order of priority,as soon as cost inncurred, proportionate revenue are also
created so that the asociated profit are also created. Assumption: basic concept:effort
and accomplishment, effort proceeds accomplishment, therefore not revenue bear the
expenses, people are willing to make effort by expecting probable profit.revenue: the
gross inflow of economic benefits during the period arising in the course of the ordinary
activities of an entity when those in flows result in increases in equity, other than
increases relating to contributions from equity participants. Revenue isn’t Gain. revenue
recognition: formally recording the measured amount to the accounting systems so that
the amount is reflected in the financial statements.criteria:realized:there is a contract
between the buyer and seller to buy a product,realizable:when the product is easily
marketable, Assets said to be easily converted when has (1) the fixed unit price remains
dependent in form and presentation of goods (interchangeable/fungi units) (2) a price list
of goods available in an active market are capable of absorbing the entire quantity of
goods (assets) that are available on the company without affecting the market price
significantly. For example the price of 22 carat gold in an active market is 80,000 per gram.
To meet the criteria of (1) the price should remain 80,000 per gram regardless of whether
gold is in the form of jewelry, powder, or bars. (2) how many grams of gold sold also will
not affect the market price.substantially earned:revenue said to be earned when the
company has conduct the substantial actiivy in order to create the value of
products.timing of revenue: the point where all the recognition criteria are met.the sales
point best meets the three general recognition criteria, therefore the sales points in the
earning process is selected as being generally the most appropriate time to measure and
record revenue because it meets the criteria for recognition. Many argue that sales (
transfer of goods) isn’t the best time to recognize revenue and suggest that it should be
recognized when all cash has been collected because 1. Due to the uncertainties on
revenue measure caused by administrative, return cost, after-sale-costs-or-after costs,
and uncollectible debt risk. Recognition of service revenue: 1. At the time service has
been consumed,2. During the service execution in stages, 3. Aat the time is service fully
completed, 4. At the time is cash collected. An entity will be able to make reliable
estimates once it has agreed with the customer usually when 1. each parties enforceable
right regarding the service, there is consideration payable, and there is term of settlement
or by precentage of completion. Characteristic of gain: increase in equity from incidental
transactions and other transcations except from revenue or invetment by owners.
Expense –decrease in value of asset and equity, used to create revenue (matching) in
order to obtain meaningful information.expense recognition:consumption of
benefits:expense recognized when the economic benefits controlled by entitiy already
consumed in creating the value of product which represent the main operation of entity(
salary exp, administrative exp),loss or lack of beneifts: expense or loss recognized when
the economic benefits of assets has been decreasing or no economic benefits at
all.differences:in expense recognition, there is no problem with earned or
realization.therefore, recognition criteria is similar with recognition rules so the issues in
expense (loss) recognition is when the decreasing of asset value has done or when the
expenses has occured.matching concept: to obtain proper and meaningful periodic
income, revenue recognized during a period should be matched (assoicated) with
expenses that are assumed to have created those revenues. Characteristics of
losses:decrease in net equity from peripheral or incidental transactions other than
expense and other than distributions to owners.Income semantic: the increase in
economic wealth evidenced by an increase in capital for a period of a time as a result
from productive activities in a broad sense that can be consumed or withdrawn by capital
controlling or owning entities without affecting or impairing the beginining capital.
Income concept in semantic level:1. Estimator of economic income,2.meausure of
performance,3. Confirmation of investor’s expectation. Income syntatic: how income is
measured,recognized, and presented : 1.transaction approach (the recording of changes
in asset and liability valuations only as these are the result of transcactions, 2. Activities
approach: it focuses on a description of the activities of a firm rather than on the
reporting of transactions, that is, income is assumed to arise when certain activities or
events take place, 3. Capital maintenance approach: increase in the wealth/capital for a
period of time can be consumed,enjoyed,distributed or withdrawn by controlling entities
or those who have claim over the wealth provided that beginning wealth is maintained if
income have informational substance, market will react to the earning announcement,
when announced, market has certain expectation about how much the income of the
entitiy by analysing from the available information. Weaknesses of accounting income:
1. Semantically meaningless, 2. Focused on shareholders, 3.gaap lead to different
incomes among entities, 4.historical cost based(does not take into account the different
of purchasing power). Income concept in pragmatic level ( how income information is
used and useful):1.predictor of cash flow 2.instrument for contract efficiency
(incorporation of accounting information in a contracts encourages contracting parties to
meet the contract so that the contract is efficient without close
monitoring),3.management control tool (income can be used as a performance meausure
that include divisional managers to make great effort to achieve the interest of company
as a whole), 4.information content in efficient market hypothesis (market is said to be
efficient in relation to a set of information if the share price reflect quickly and fully the
particular set of information). Capital is a stock of wealth at instant time, income is a flow
of services through time, capital is the embodiment of future services, and income is the
enjoyment of these services over a specific period of time. equity:the residual interest in
the assets of an entity that remains after deducting its liabilites.difference with
liabilities:1.settlement of claim ( at liabilities, settlement of claim is in certain date by
asset transfering and get higher priority compared to shareholders) 2. Access to assets,
operation, and decision 3. Presentation substance/objectives( because creditor is
prioritized, their risk are much lower compared to shareholders, shareholders bear the
risk in regard to the entity operation. However, creditors only got fixed payment while
shareholders could get much more return depend on earning distribution. the most basic
objective of stockholder equity classification is to provide information to investor,
stockholder, creditors, and others interested group regarding the efficiency and
stewardship of management,the classification should also provide information regarding
the historical and prospective economic interest of the groups holding specific equities
and the groups that have a general economic interest in the corporation.contents of
information:the source of capital supplied to the corporation,the legal restrictions on
the distribution of invested capitals to stockholders,the legal, contractual,managerial,
and financial restrictions on the distribution of dividends to current and potential
stockholders, the priorities of the several classes of stockholders in partial or final
liquidation(level of protection and loss absorption).classification of stockholders equity
by source is generally considered to be the major classification objective in balance sheet
presentation in the traditional accounting structure.a description of the sources of capital
is valuable because it provides information regarding the historical development of the
corporation.it also indicate whether the firm has financed its growth internally or
externally. A main disadvantage of the conventional classification is that the
classification by source is lost whenever transfers are made from retained earnings to
capital stock and additional paid in capital by issuing stock dividends or other means.paid
in capital and earned capital:1.to meet the objective of the presentation 2.different
sources (Source: PIC: First deposit to finance the business, EC: When the business
operates) 3.differnet information content (invested capital vs earning power) (PIC: basic
fund retained for external party protection, EC: operation fund to earn income).
4.essential difference in purpose (financing vs productive) 5.capital vs operating
transcaction. the basic principle is that a restriction is placed on the amount of assets
that can be distributed legally to stockholders under normal circumstances prior to final
liquidation. However, current financial statements don’t disclose the amount of legal
capital, although there are usually separate classification for capital stock and additional
paid in capital.