BU127 Chapter Notes - Chapter 2: Retained Earnings, Accounting Equation, Deferred Income

• School: WLU
• Department: Business
• Course: BU127
• Professor: James Moore

Document Summary

Objective of financial reporting: the primary objective of financial reporting is to provide financial information about a business to help external parties make sound financial decisions. Qualitative accounting information: to fulfil the primary objective of financial reporting, financial statements must represent. 6 qualitative characteristics to provide accurate and useful information. Relevance: rele(cid:448)a(cid:374)t i(cid:374)fo(cid:396)(cid:373)atio(cid:374) i(cid:374)(cid:272)luded i(cid:374) the fi(cid:374)a(cid:374)(cid:272)ial state(cid:373)e(cid:374)ts (cid:272)a(cid:374) i(cid:374)flue(cid:374)(cid:272)e a use(cid:396)"s decisions and therefore has predictive and confirmatory value. Faithful representation: faithful representation suggests that info provided in financial statements must reflect the substance of the underlying transactions, which may differ from their legal form. Comparability: comparability of accounting information across businesses is enhanced when similar accounting methods have been applied. Information is verifiable if independent accountants can agree on the nature and amount of a transaction. Timeliness: ti(cid:373)el(cid:455) i(cid:374)fo(cid:396)(cid:373)atio(cid:374) e(cid:374)ha(cid:374)(cid:272)es the i(cid:374)fo(cid:396)(cid:373)atio(cid:374)"s a(cid:271)ilit(cid:455) to p(cid:396)edi(cid:272)t futu(cid:396)e (cid:448)alues a(cid:374)d confirm past values. Understandability: the quality of the information that enables users to comprehend its meaning.