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University of Waterloo
Accounting & Financial Management
AFM 101
Grace Loney

CHAPTER 2  Primary objective of external financial reporting: provides useful economic info about a business to help external parties make sound financial decisions.  Summary of financial accounting and reporting: page 48 exhibit2.1  Four basic accounting assumption: 1. separate-entity: usiness transactions are separate from the transactions of the owners. 2. unit-of-measure: acc info shud be measured and reported in the national monetary unit. 3. continuity(going-concern): businesses are assumed to continue to operate into the foreseeable future. 4. periodicity: provides guidance on measuring revenues and expenses  Basic accounting principle: Cost principle: requires assets to be recorded at the historical cash-equivalent cost, which is cash paid plus the current monetary value of all non-cash considerations also given in the exchange, on the date of the transaction.  Page 51 sample stmt of financial position  Assets: economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be concerned  Current assets: assets that will be used or turned into cash, normally within one year. Inventory is always considered to be a current asset.  List assets in order of liquidity, which means how soon they can be transformed into cash.  Non-current assets: they will be used or turned into cash over a period longer than the next year.  Type of assets: 1. current assets: cash and cash equivalents(most liquid), short-term investments, trade and other receivables, inventories, prepayments, other 2. non-current assets: property, plant and equipment(land, buildings, machinery, tools, furniture)(also called fixed/capital assets since they have physical form; tangible), investments in associates, financial assets, goodwill, intangible assets, other  Liabilities: present debts or obligations of the entity that result from past transactions, which will be paid with assets or services  List by order of time to maturity, means how soon an obligation must be paid  Current liabilities: obligations that will be paid in cash or satisfied by providing service within the coming year.  Non-current liabilities: a company’s debts that have maturities extending beyond one year from the date of the stmt of financial position.  Ty
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