Page 216 - Accounting Principles (A Business Perspective)

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similar circumstances using another method. A high degree of inter-company comparability in accounting
information does not exist unless accountants are required to account for the same activities in the same manner
across companies and through time.

As we show in Exhibit 28, accountants must consider one pervasive constraint and one threshold for recognition
in providing useful information. First, the benefits secured from the information must be greater than the costs of
providing that information. Second, only material items need be disclosed and accounted for strictly in accordance
with generally accepted accounting principles (GAAP). We discussed cost-benefit and materiality earlier in the
chapter.

An accounting perspective:

Use of technology

You may want to visit the home page of the Financial Accounting Standards Board at:
http://www.fasb.org

You can check out the latest developments at the FASB to see how the rules of accounting might be
changing. You can investigate facts about the FASB, press releases, exposure drafts, publications,
emerging issues, board actions, forthcoming meetings, and many other topics.

The basic elements of financial statements

Thus far we have discussed objectives of financial reporting and qualitative characteristics of accounting
information. A third important task in developing a conceptual framework for any discipline is identifying and
defining its basic elements. The FASB identified and defined the basic elements of financial statements in Concepts
Statement No. 3. Later, Concepts Statement No. 6 revised some of the definitions. We defined most of the terms
earlier in this text in a less technical way; the more technical definitions follow. (These items are not repeated in
this chapter's Key terms.)
Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past

transactions or events.
Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular
entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Equity or net assets is the residual interest in the assets of an entity that remains after deducting its
liabilities. In a business enterprise, the equity is the ownership interest. In a not-for-profit organization, which has
no ownership interest in the same sense as a business enterprise, net assets is divided into three classes based on
the presence or absence of donor-imposed restrictions—permanently restricted, temporarily restricted, and

unrestricted net assets.
Comprehensive income is the change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.

Accounting Principles: A Business Perspective 217 A Global Text