chapter2notes - CH 2 Financial Statements and the Annual...

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CH 2 – Financial Statements and the Annual Report The primary objective of financial reporting is to provide economic information to permit users of the information to make informed decisions. What makes accounting information useful? Qualitative Characteristics: A. Understandability information should be comprehensible to those who are willing to spend time to understand it. B. Relevance capacity of information to make a difference in a decision C. Reliability is dependable, accurate information 1. Verifiability – can be verified independently. Free from error 2. Representational Faithfulness – represents reality; accurate 3. Neutral - unbiased D. Comparability comparisons with other companies E. Consistency allows comparisons within a company from one accounting period to the next Constraints of Accounting Measurement: A. Materiality – the dollar magnitude of the transaction makes a difference in how it is recorded B. Conservatism – don’t overstate assets or revenues, don’t understate liabilities or expenses.
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Financial Statements: An In-depth Look A. Income Statement - Statement of Earnings 1. Components of an Income Statement : Revenues – Expenses – 2. How the Components Can be Presented: (2) Formats : Single-Step Income Stmt. Multi-Step Income Stmt. (Lumps together all sources of Revenues & Gains, *(Identifying characteristics: Gross Profit , less all expenses & losses.) Income from Operations) Revenues $ xx Revenues $ xx + Gains from sale of assets xx - Cost of Goods Sold
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chapter2notes - CH 2 Financial Statements and the Annual...

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