ACCT 3110 1st Edition Lecture 3 Outline of Last Lecture II. Conceptual FrameworkIII. Qualitative CharacteristicsIV. Basic Assumptions of Financial ReportingOutline of Current Lecture V. Measurement PrinciplesVI. RecognitionsVII. Voucher PackageCurrent LectureHistorical Principle: Keep asset in books as the price you paid- NEVER write an asset up above historical cost, but every time an asset is impaired (loses value) write it down- Only realize a gain when its sold- Used by most companiesFair Value Principle: Record asset as what you would get if you were to sell it now- Used only by investment companiesFair Value Disclosure: All public companies are required to include fair values of certain financialinstruments (even if they use historical cost otherwise) and the level of reliability as per the Fair Value Disclosure Hierarchy Fair Value Disclosure Hierarchy: Asks the question “How good is your fair value estimate?”- Level 1: Least subjective, most accurate, value is determined based on identical assets in the current active market (tells you exactly what it’s worth)- Level 2: Somewhat subjective, somewhat accurate, value is determined by a professional through observation of the asset (ex. Property appraiser)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Level 3: Most subjective, least accurate, value is determined by yourself based on comparing it to similar things based on a company’s own data or assumptionsRevenue Recognition: Revenue is recognized when performance obligation is satisfied- FOB Shipping Point: Revenue is recognized upon shipment to customer- FOB Receiving Point: Revenue is recognized when the customer receives the productMatching Principle: Should try to recognize expenses in the same period where revenues are incurred- Product costs are charged to the asset and manufacturing labor is a product cost so it gets debited to inventory not salaries expense- Product costs are on balance sheet- Period costs are on income statementWhen writing a check you must check over the voucher package, which includes1. Vendor Invoice2. Purchase Order3. Warehouse Receiving