FASB proposal

Sample Solution

• Title: The title of GAAP Concept No. 5 is Recognition and Measurement in Financial Statements of Business Enterprises.
• Purpose: The purpose of the reporting discussed in this concept is to provide information about the financial position, performance, and cash flows of an enterprise that is useful to present and potential investors, creditors, and other users in making economic decisions.

Full Answer Section

• Last Modified: This concept was last modified in December 2021.

GAAP Concept No. 5 is one of the Statements of Financial Accounting Concepts (SFACs) issued by the Financial Accounting Standards Board (FASB). The SFACs are a set of conceptual frameworks that provide guidance on the objectives of financial reporting, the elements of financial statements, and the measurement of those elements.

Concept No. 5 discusses the fundamental principles of financial reporting, including the concepts of recognition and measurement. Recognition is the process of incorporating an item into the financial statements. Measurement is the process of assigning a monetary value to an item that has been recognized in the financial statements.

The concept states that an item should be recognized in the financial statements if it meets the following criteria:

• It is probable that future economic benefits will flow to or from the entity as a result of the item.
• The item has a cost or value that can be reliably measured.

The concept also states that an item should be measured at its fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Concept No. 5 is an important document that provides guidance on the fundamental principles of financial reporting. It is used by accountants, auditors, and other financial professionals in preparing and interpreting financial statements.