Chapter_2_Notes

Chapter_2_Notes - Chapter 2 Objectives 1. Discuss the...

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Chapter 2 Objectives 1. Discuss the meaning of Generally Accepted Accounting Principles ( GAAP ). 2.Discuss the objectives of financial information. 3. Identify certain Constraints (limits) on financial information. 4. Learn the elements of a Classified Balance Sheet and the reason for having a Classified Balance Sheet . 5. Identify, define and compute Ratios to analyze the profitability, liquidity and solvency of a company.
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GAAP (Generally Accepted Accounting Principles) GAAP are the body of principles governing accounting for financial transactions that underlie the preparation of Financial Statements. Sources of GAAP 1. FASB – Financial Accounting Standards Board Most influential 2. AICPA – American Institute of Certified Public Accountants. Auditing Standards Professional Ethics 3. Accounting Literature – Textbooks, Articles, Papers, Industry Guides.
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Regulators of GAAP Securities and Exchange Commission The government agency that enforces rules for Financial Markets.
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Useful Financial Information Has: Relevance – Information that could make a difference in financial decisions. “Tell me what I need to know.” Reliability – Information should be free fro material error or bias. “Can the information be trusted?”
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Comparability – A financial statement user should be able to compare the results to different companies because they use the same accounting principles. “Comparing apples to apples and not apples to oranges.” does not = Consistency – The same accounting principles should be used from year to year within the same company so that results can be analyzed. “Are we doing better or worse?”
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Constraints Materiality If it’s “ too small to matter ” do not spend time to achieve exactness. For instance garbage cans have a long
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Chapter_2_Notes - Chapter 2 Objectives 1. Discuss the...

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