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Chapter 2

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Department
Geography
Course
Geography 1100
Professor
Prof
Semester
Winter

Description
MOS 1023 Lecture 2 Assets = Liabilities + Equities Conceptual Framework: developed for shareholders to have access to information. Shareholders purchase shares in a com[any ex coca cola and are given access to financial information to make decisions to continue to invest in that company Purpose of Conceptual Framework of Accounting - shows us what to present in financial statements The Overall objective of financial reporting is to provide information that is: -useful to users(investors, creditors) -relevant to making a decision(resource allocation) Resource allocation decisions are assumed to include assessment of management stewardship (management role in maximizing shareholder value)(management hired on behalf of shareholders) Trueblood Committee (1970s) To be useful in decision making procsses we look at the following characteristics: 1)relevent -as up to date as possible -be able to tell you alot from financial statements 2)Representational Faithfulness(Reliability) -be useful and free from bias(shouldn’t care what the outcome is) -reflect economics reliability of ... -substance over form (look at the substance over transaction over the legal form) (example: leases.) Enhancing Qualitative Characteristics: 1)Comparability- info measured and reported in similar ways (company to company, year to year) It allows users to identify real economics similarities and differences 2)Verifiability- similar results achieved if same methods are used. Ex. if someone wants to know how much you paid for your house and you have the contract. Audits enhance this stating they’ve reached the same consensus. 3)Timelines MOS 1023 Lecture 2 4)Understandability: we make the assumption that the users of the information has some knowledge about understanding the information. Not the average person, it is a reasonability informed person will be able to understand that or willing to get help. 5)Trade Off- Constraints 1)Materiality: 2)Cost vs Benefits- benefits of using information should outweigh the costs of providing that information. Preparatory Information What make up a financial statement: Asset-entity has a right to access those resources where others do not Liability- Equity- new worth(what you owe) Revenues- comes from ordinary course of business. Increases in economics resources Expenses- Decreases in economics resources resulting from ordinary activities Gains- comes from incidental transactions. Increases in equity(net assets) Losses- Decreases in equity (net assets) resulting from incidental transactions Recognition Derecognition Cash Basis of Accounting: -revenue is recorded when cash is received -expenses are recorded when incurred Accrual Basic of Accounting -revenues are recorded when earned -expenses are recorded when incurred regardless of when cash is received or paid Matching -expenses are matched with revenues that they produce -illustrates a “cause and effect relationship” between money spent to earn revenues and the revenues themselves -if the expense benefits the current and future periods(and meets the definition of asset) it is deferred -this asset’s cost is then systematically and rationally matches to future revenues Measurement: -all elements must be measurable to be r
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