LN02-ch2-AFM101s10

LN02-ch2-AFM101s10 - Chapter 2 Investing and Financing...

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Financial Accounting, Third Canadian Edition 2-1 Investing and Financing Decisions and the Balance Sheet Chapter 2
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Financial Accounting, Third Canadian Edition 2-2 To understand amounts appearing on a company’s balance sheet we need to answer these questions: What business activities cause changes in the balance sheet? How do specific activities affect each balance sheet amount? How do companies keep track of balance sheet amounts? Business Background
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Financial Accounting, Third Canadian Edition 2-3 The Conceptual Framework
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Financial Accounting, Third Canadian Edition 2-4 The Conceptual Framework Qualitative Characteristics Understandability Relevancy Reliability Comparability Consistency Elements of Statements Asset Liability Shareholders’ Equity Revenue Expense Gain Loss Objective of Financial Reporting To provide useful economic information to external users for decision making and for assessing future cash flows .
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Financial Accounting, Third Canadian Edition 2-5 Elements of Statements Asset Liability Shareholders’ Equity Revenue Expense Gain Loss Qualitative Characteristics Understandability Relevance Reliability Comparability Consistency Objective of External Financial Reporting To provide useful economic information to external users for decision making and for assessing future cash flows. Primary Characteristics Understandability: easy to read Relevance: predictive value, feedback value, and timeliness. Reliability: verifiability, representational faithfulness, and neutrality. Secondary Characteristics Comparability: across companies. The Conceptual Framework
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Financial Accounting, Third Canadian Edition 2-6 Assumptions Separate entity (economic entity): Transactions of the business entity are separate from transactions of owners. Continuity (going-concern): The entity is expected to continue its operations in the near future. Unit-of-measure: Accounting measures are reported in the national monetary unit ($). Periodicity: The long life of a company can be reported over a series of short time periods. The Conceptual Framework
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Financial Accounting, Third Canadian Edition 2-7 Principles Historical cost: The cash equivalent cost is the basis for initial recording of financial statement elements. Revenue recognition: covered in Chapter 3. Matching: covered in Chapter 3. Full disclosure: covered in Chapter 6. The Conceptual Framework
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Financial Accounting, Third Canadian Edition 2-8 Basic Accounting Principles Historical cost (expanded): The cost principle requires assets to be recorded at the historical cash – equivalent cost, which on the date of transaction is cash paid + the current dollar value of all non-cash considerations also given in the exchange. The Conceptual Framework
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Financial Accounting, Third Canadian Edition 2-9 Qualitative Characteristics Relevancy Reliability Comparable Consistent Financial Statement Elements Asset Liability Shareholders’ Equity Revenue Expense Gain Loss Objective of External Financial Reporting
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This note was uploaded on 06/17/2011 for the course AFM 101 taught by Professor Kennedy during the Spring '08 term at Waterloo.

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LN02-ch2-AFM101s10 - Chapter 2 Investing and Financing...

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