Chapter 02

Chapter 02 - Chapter 2 Financial Statements and the Annual...

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Chapter 2 Financial Statements and the Annual Report
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Primary Objective of Financial Reporting Invest?? Borrow $$?? Sell stocks or bonds?? Start new business?? Loan $$?? Extend credit $$?? LO1 Provide information for decision making
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Secondary Objectives of Financial Reporting Reflect prospective cash receipts to investors and creditors Reflect prospective cash flows to the company Reflect the company’s resources and claims to its resources Assets = Liabilities + OE
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Qualitative Characteristics Understandability – Relevance – Reliability – LO2 Represents what it purports Has capacity to Make a difference To those willing to take The time to understand it
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Qualitative Characteristics From one period to the next Consistency between companies Comparability
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Qualitative Characteristics Conservatism Will it make a difference To the decision maker? All else equal, choose Least optimistic estimate Materiality
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Basic Structure of a Classified Balance Sheet Current assets + Noncurrent (long-term) assets
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Chapter 02 - Chapter 2 Financial Statements and the Annual...

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