ch. 2 - Financial Accounting Chapter 2 1 Chapter 2 Study...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Financial Accounting - Chapter 2 1 Chapter 2 - Study Objectives After studying this chapter, you should be able to: 1. Explain the meaning of generally accepted accounting principles (GAAP) and describe the basic objective of financial reporting. 1. Discuss the qualitative characteristics of accounting information. 1. Identify the two constraints in accounting. 1. Identify the sections of a classified balance sheet. 1. Identify and compute ratios analyzing a company’s profitability. 1. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. 1. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. 2. Identify and compute ratios for analyzing a company’s liquidity and solvency using a statement of cash flows. Financial Accounting - Chapter 2 2 Objectives of Financial Reporting Financial reporting is the term used to describe all the financial information presented by a company - both in its financial statements (F/S) and in the additional disclosures. The basic objectives of financial reporting is to provide information that is: Useful to those making investment and credit decisions. Useful in assessing future cash flows. Useful about the enterprise’s resources, claims to resources, and changes in them. Note: These objectives are directed at persons with a reasonable understanding of business and economic activities. Financial Accounting - Chapter 2 3 The Setting of Accounting Standards Generally Accepted Accounting Principles (GAAP) represents the consensus view, at a particular point in time, concerning the appropriate concepts and standards to apply in financial accounting. The following issues are resolved by reference to GAAP: How should accounting information be recorded? What information should be disclosed? How should that information be disclosed? What financial statements should be prepared? Note: Accounting standards are generally set by the accounting profession itself through its Financial Accounting Standards Board (FASB). However, the Securities and Exchange Commission (SEC) has the legal authority to prescribe accounting standards. Financial Accounting - Chapter 2 4 Qualitative Characteristics of Accounting Information In order to be useful and understandable, financial information should possess the following primary qualitative characteristics: Relevance - the information is capable of making a difference in a decision. It can help predict future events, provides feedback about prior expectation, and it is available in time to influence a decision. to influence a decision....
View Full Document

This note was uploaded on 04/14/2008 for the course ACCT 201 taught by Professor Romney during the Fall '06 term at San Diego.

Page1 / 25

ch. 2 - Financial Accounting Chapter 2 1 Chapter 2 Study...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online