AFM101 Chapter Notes - Chapter 2: Financial Statement, Accounting Equation, Deferred Income

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM101
• Professor: Jiye Li

Document Summary

Objective of financial reporting: provide useful financial information about a business to help external users (investors and creditors), make sound financial decisions (make resource allocation decisions) in their capacity as capital providers (assessing future cash flows) Users of accounting information are identified as decision makers. 6 qualitative characteristics of accounting information: relevance: has predictive/confirmatory value (impact decision of user) Net earnings is a relevant info if it helps users predict future net earnings. Material amounts: amounts large enough to influence a user"s decision. Determining material amounts is often subjective: faithful representation: the information provided in financial statements must reflect the substance of the underlying transactions, which may differ from their legal form (complete, unbiased, and correct) Inventory would not include laptop computers used by employees. Cost constraint: the information should be produced only if the perceived benefits of increased decision usefulness exceed the expected costs of providing that information. Material: material is relevant if it will impact decisions.