BU127 Chapter Notes - Chapter 2: Current Asset, Historical Cost, Financial Statement
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BU127 Full Course Notes
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Chapter 2: investing and financing decisions and the statement of financial position. Main purpose of external financial reporting is for external parties like investors and creditors. Relevance: relevant if it can influence a decision: predictive and/or confirmatory value, ex. Net earnings is relevant because it helps users predict future net earnings: material amounts: a(cid:373)ou(cid:374)ts la(cid:396)ge e(cid:374)ough to i(cid:374)flue(cid:374)(cid:272)e a use(cid:396)"s de(cid:272)isio(cid:374) Faithful representation: neutral, unbiased, free from material error, must reflect substance of underlying transactions which may differ from their legal form. Comparability: accounting information across businesses is enhanced when similar accounting methods have been applied: users can identify similarities and differences between things reported by different companies. Verifiability: verifiable if independent accountants can agree on the nature and amount of a transaction. Timely: i(cid:374)fo(cid:396)(cid:373)atio(cid:374) e(cid:374)ha(cid:374)(cid:272)es the i(cid:374)fo(cid:396)(cid:373)atio(cid:374)"s a(cid:271)ilit(cid:455) to p(cid:396)edi(cid:272)t future values and confirm past ones. Understandability: quality of information that enables users to comprehend its meaning.