7 Accounting Principles
Chapter
STUDY OBJECTIVES
After studying this chapter, you should be able to: 1 Explain the meaning of GAAP and identify the key items of the conceptual framework. 2 Describe the basic objectives of financial reporting. 3 Discuss the qualitative characteristics of accounting information and elements of financial statements. 4 Identify the basic assumptions used by accountants. 5 Identify the basic principles of accounting. 6 Identify the two constraints in accounting. 7 Understand and analyze classified financial statements. 8 Explain the accounting principles used in international operations.
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Scan Study Objectives Read Feature Story Read Preview Read text and answer Before You Go On p. 298 ■ p. 304 ■ p. 313 ■ Work Demonstration Problems Review Summary of Study Objectives Answer Self-Study Questions Complete Assignments
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Feature Story
CERTAINLY WORTH INVESTIGATING! It is often difficult to determine in what period some revenues and expenses should be reported. There are rules that give guidance, but occasionally these rules are overlooked, misinterpreted, or even intentionally ignored. Consider the following examples. • Policy Management Systems, which makes insurance software, said that it reported some sales before contracts were signed or products delivered. • Sunbeam Corporation, while under the control of the (in)famous “Chainsaw” Al Dunlap, prematurely booked revenues and recorded overly large restructuring charges. Ultimately the company had to restate its net income
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figures, and Mr. Dunlap lost his job. • Rent-Way Inc., which owns a large chain of rent-to-own stores, saw its share price plummet from $23.44 to $5 within a week after it disclosed what the company termed “fictitious” accounting entries on its books. These entries included improper accounting for fixed-asset write-offs, and understating the amount of damaged or missing merchandise. Often in...