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Acct Chap 2 - Chapter 2 Financial Statements and the Annual...

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1 Chapter 2 Financial Statements and the Annual Report
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2 Financial Reporting Objective of financial reporting is to PROVIDE INFORMATION for decision-making Information must be USEFUL if used for decision-making For information to be USEFUL – must have certain qualitative characteristics
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3 Qualitative Characteristics Understandability - Relevance - Reliability - To those willing to take the time to understand it Represents what it purports to Has capacity to make a difference
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4 Qualitative Characteristics between companies Comparability from one period to the next Consistency
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5 Qualitative Characteristics Materiality Conservatism All else equal, choose least optimistic alternative Will it make a difference to the decision maker?
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6 The Basic Financial Statements Balance Sheet » Usually CLASSIFIED – requires understanding of operating cycle Income Statement » Single-Step or Multi-Step Retained Earnings Statement » May be combined in Statement of Stockholders’ Equity Statement of Cash Flows
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7 The Concept of Operating Cycle CASH Time it takes to go from cash back to cash A FEDERAL RESERVE NOTE THE UNITED STATES OF AMERICA L70744629F 12 12 12 12 L70744629F ONE DOLLAR ONE DOLLAR WASHINGTON, D.C.
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