Question 2CE - Intermediate Accounting (Kieso)

Question

Briefly describe how the organization of the FASB Codification corresponds to the elements of financial statements.

Step-by-Step Solution

Answer

The FASB Codification is strongly connected with the components of financial statements attached to the Conceptual Framework. It is clear when looking at the “Browse section” format, which has a principal interface for assets, liabilities, equity, revenues as well as expenses.

Meaning of Financial Statements

The primary purpose of a financial statement is to aid the decision-making process and enable users to make rational investment, lending and credit, and other similar financial decisions, which will also help them estimate future cash flows as well as assess the risks of potential bankruptcy.

Correspondence of the FASB Codification to the elements of financial statements

The organization of the FASB Codification is identical to the aspects of financial statements as defined in the Conceptual Framework. It reflects the assets, liabilities, equity, revenues, and expenses, which are the key elements defined in the Conceptual Framework.