Week 10 Preparation Questions Solutions

Week 10 Preparation Questions Solutions - ACCT1501 2011S1...

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ACCT1501 2011S1 Week 10 Preparation Questions Solutions Preparation Questions: Discussion Question 6.1, 6.2, 6.12, 6.13; Problems 6.9, 6.11, 6.18, 6.19 1 The three key financial statements are: i Income Statement ii Balance Sheet iii Statement of Cash flows 2 The standard financial statements are not enough to transmit all the information felt to be needed by users of the statements. Therefore, GAAP require that notes be appended to the statements. The purpose of these notes is to provide information about the accounting policies chosen and other supplementary information helpful to interpreting the figures. 12 Accounting concept the Framework defines assets as ‘resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity’. Based on this definition, assets need to have three essential characteristics: i Future economic benefits ii Control by the entity iii Occurrence of past transactions or other past events. 13 Accounting concept the Framework defines liabilities as ‘present obligations of the entity arising from past events, the settlements of which are expected to result in an outflow from the entity of resources embodying economic benefits’. Based on this definition, liabilities need to have two essential characteristics: i A present obligation exists ii The obligation involves settlement in the future via the sacrifice of service potential or future economic benefits. Problem 6.9 Section 6.3 contains a large number of concepts and principles; here are the main ones with a few words about why each is useful (paraphrased, brief and to the point, as Jason would want them). Term Why Useful a Conformance with GAAP • These are the accounting rules that must be followed in the preparation of financial statements. • They are generally called ‘generally accepted accounting principles’ because they are based on principles used over time that have become the accepted way of doing accounting. • Because of this, most educated users of financial statements understand these rules. • Jason would like this because it means that his financial statements will be understandable to users
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This note was uploaded on 03/19/2012 for the course ACCT 1501 taught by Professor Helen during the Three '09 term at University of New South Wales.

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Week 10 Preparation Questions Solutions - ACCT1501 2011S1...

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