Chapter 2 Study Guide

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Financial Accounting
Douglas Kong

Chapter 2objective of financial reporting to provide useful economic information to external users for decision making and for assessing future cash flowsQualitative characteristicsrelevancy makes a difference in a decision predictive value feedbackconfirmatory valuefaithful representation complete neutral reasonably free from error or biascomparability across companiesverifiability similar results under independent measurestimeliness information must be available before it loses its usefulnessunderstandability allows reasonably informed users to see the significance of the informationAssumptionsSeparate entity activities of the business are separate from activities of ownersContinuity the entity will not go out of business in the near futureUnit of measure accounting measurements will be in the national monetary unitPrincipleHistorical cost cash equivalent cost given up is the basis for the initial recording of elementsCurrent assets assets that will be used or turned into cash normally within one year Inventory is always considered to be a current asset regardless of the time needed to produce and sell itN
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