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Unformatted text preview: Chapter 2 Primary objective of external financial reporting: to provide useful economic info about a business to help external parties make sound financial decisions Accounting Assumptions 3 of 4 basic assumptions that underlie accounting measurement and reporting relate to the balance sheet Separate Entity Assumption: states that business transactions are accounted for separately from the transactions of owners Unit of measure assumption: accounting info should be measured and reported in the nationally monetary unit Continuity assumption: businesses are assumed to continue to operate into the foreseeable future Elements of the Balance Sheet Assets: economic resources with probable future benefits owned by the entity as a result of past transactions Historical cost principle (cost principle): requires assets to be recorded at historical cost that, on the date of the transaction, is cash paid plus the current dollar value of all noncash considerations also given in the exchange Paid on the date of purchase+ current dollar value of all noncash considerations= historical cost Assets are put on the sheet...
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