Primary objective of external financial reporting: provides useful economic
info about a business to help external parties make sound financial
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
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,
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
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.