BU127 Lecture Notes - Lecture 2: Investment, Deferred Income, Accounting Equation
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BU127 Full Course Notes
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Document Summary
To provide useful economic information to external users for decision making. Elements to be measured and reported: assets, liabilities, equity, revenues, expenses. The users of accounting information are identified as decision makers. Creditors and potential creditors need to assess an entity"s ability to pay interest over time and repay the initial amount borrowed called the principal. Material amounts are amounts that are large enough to influence a user"s decision. Determining material amounts is often very subjective and is viewed as entity-specific aspect of relevance. Comparability: enables users to identify similarities and differences between two items reported by teo companies. Verifiability: company"s activities are faithfully represented in financial statements. Timeliness: enhances the information"s ability to predict future values and to confirm past values. Understandability: is the quality of information that enables users to comprehend its meaning. Cost constraint: suggest that information should be produced only if the perceived benefit or increased decision usefulness exceed the expected costs of providing that information.
