Chapter 2- Investing and Financing Decisions and the Statement of Financial Position.docx

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University of Waterloo
Accounting & Financial Management
AFM 101
Shannon Hartling

Chapter 2- Investing and Financing Decisions and the Statement of Financial Position September 15, 2013 10:33 PM Concepts Emphasized in Chapter 2  The primary objective of external financial reporting is to provide investors and creditors with useful information to make sound financial decisions Accounting Assumptions The separate entity assumption states that business transactions are separate from transactions  of the owners  The unit of measure assumption states that accounting information should be measured and reported in the national monetary unit  The continuity (going concern) assumption states that the businesses are assumed to continue to operate into the foreseeable future  The cost principle requires assets to be recorded at the historical cost, which is paid plus the current monetary value of all non-cash considerations also given in the exchange, on the date of the transaction Elements of the Classified Statement of Financial Position  Assets- economic resource controlled by the entity, divided into current assets and non-current assets  Current assets are assets that will be used of turned into cash, normally within one year. Inventory is always considered a current asset, regardless of time needed to produce of sell it  Current assets include:  Cash and cash equivalents  Short term investments; shares of other companies purchased as investments of excess cash  Receivables; money owed to the entity  Inventories; goods held for sale, or used to produce goods of services for sale  Prepayments; reflect available benefits ex/ insurance, rent paid in advance  Other current assets; a number of smaller assets who's balances are combined  Non-current assets include:  Property, plant, and equipment (fixed or capital assets, tangible)  Investment in associates; purchase of shares to exercise influence over other corporations  Financial assets; investments in shares issued by other companies indented to be kept for more than a year  Goodwill; intangible asset that arises when a company purchases another business to control its operating, investment and financial decisions, reflects assets like consumer confidence and quality products  Intangible patents; licenses and patents  Non-current assets are long term because they will be used or turned into cash over a period longer than a year  Liabilities are present debts or obligations of the entity that result from past transactions which will be paid with assets or services  Current liabilities are obligations that will be satisfied within a yea
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