ECON 3A Lecture Notes - Lecture 3: Historical Cost, Financial Statement, Retained Earnings
Document Summary
Present in meaningful way to users of financial statements. Match expenses to period when revenue is recorded. Record expenses when incurred (under gaap, incurred: when the associated benefit has been realized ) The balance sheet is a parking lot. Everything on the balance sheet eventually finds its way to the income and equity statements. Assumes the company is a going concern otherwise consider utilizing. Historical cost principle is changing, fair value more common as accounting guideline to measure fair value. Benefit of historical cost we give up with fair value: is comparable and consistent. Corporate form of ownership provides additional legal protection loss exposure should be limited to your investment. Easily controlled, but lack of diversified experience. Control begins to be shared, more diversified experience. Corporate veil: legal separation from owner and business. Complex to establish (registering, filings), but then easier to transfer ownership and raise capital. Personal liability limited to investment- corporate veil .
