Chapter_2_Lecture_Notes_4th_edition_Libby_Student_Version

Chapter_2_Lecture_Notes_4th_edition_Libby_Student_Version -...

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Unformatted text preview: Chapter 2 12/29/11 1 Investing and Financing Decisions and the Statement of Financial Position Learning Objectives- Part I 1. Discuss the overview of the conceptual framework of accounting and the key accounting assumptions and principles 2. Identify the sections of the classified balance sheet 3. Calculate ratios for analyzing profitability , liquidity and companys solvency 12/29/11 2 After studying this chapter, you should be able to: 12/29/11 3 Principles for Communicating Useful Information Primary Objective of External Financial Reporting To provide economic information to external users for decision making. Primary Objective of External Financial Reporting To provide economic information to external users for decision making. Primary Qualitative Characteristics Relevance: Timely, Predictive and has Feedback Value Faithful Representation: Accurate, Unbiased, and Verifiable Primary Qualitative Characteristics Relevance: Timely, Predictive and has Feedback Value Faithful Representation: Accurate, Unbiased, and Verifiable Secondary Qualitative Characteristics Comparability: Across businesses Consistency: Over time Understandability Secondary Qualitative Characteristics Comparability: Across businesses Consistency: Over time Understandability 12/29/11 4 Separate entity : Transactions of the business entity are separate from transactions of owners. Going concern/Continuity: The entity is expected to continue its operations in the foreseeable future. Justifies the use of cost principles Stable dollar/unit-of-measure: Only include items that can be measured in the national monetary unit ($). Purchasing power of the unit of measure does not change over time. Time Period: The long life of a company can be reported over a series of short time periods- necessary to prepare annual f/s. Separate entity : Transactions of the business entity are separate from transactions of owners. Going concern/Continuity: The entity is expected to continue its operations in the foreseeable future. Justifies the use of cost principles Stable dollar/unit-of-measure: Only include items that can be measured in the national monetary unit ($). Purchasing power of the unit of measure does not change over time. Time Period: The long life of a company can be reported over a series of short time periods- necessary to prepare annual f/s. 12/29/11 5 Historical cost: The cash equivalent cost given up is the basis for initial recording of financial statement elements. Assets and liabilities are recorded at cost- how much you paid Objectivity: amount used in recording transactions are to be based on objective evidence rather than subjective judgments Revenue recognition: Requires that revenue be assigned to the accounting period which is earned- chapter 3 Matching: Requires that revenue and expenses be matched- chapter 3 Full disclosure: Events that make a difference to users should be disclosed Historical cost: The cash equivalent cost given up is the basis for initial recording of financial statement elements. basis for initial recording of financial statement elements....
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Chapter_2_Lecture_Notes_4th_edition_Libby_Student_Version -...

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