COMMERCE 1AA3 Lecture Notes - Lecture 1: Financial Statement, Income Statement, Retained Earnings

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 1AA3
• Professor: Emad Mohammad

Document Summary

Gaap id the rule book for accountants, and gaap is guided by the conceptual framework of. The objective of financial reporting is to provide useful economic information to external users for decision making and for assessing future cash flows. Qualitative characteristics of accounting information: fundamental qualitative characteristics. Fundamental qualitative characteristics: relevance- can make a difference. Recognition and measurement criteria- assumptions: separate entity assumption. A business is a separate economic unit: continuity (going- concern) assumption. Entity will continue to exist indefinitely: historical cost assumption. Assets recorded at purchase price: stable monetary unit assumption. Dollar"s purchasing power is stable over time. Historical cost is verifiable; there is evidence, whereas market value is not. Elements of financial statements (item reported in the financial statements): Accounting transactions is a subset of business transactions. Any transaction that affects elements of financial statements. Transaction analysis: business transactions vs. accounting transactions: business transactions that affect the accounting equation are also accounting transactions.