BU127 Chapter Notes - Chapter 2: Faithful Representation, Current Asset, Historical Cost
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BU127 Full Course Notes
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Chapter 2: investing and financing decisions and the statement of financial position. The primary objective of external financial reporting is to provide financial information about a business to help external parties make sound financial decisions. Ex: net earnings is a relevant piece of information if it helps users predict future net earnings. Material amounts are amounts that are large enough to influence a user"s decision. Ex: items that are low significance do not have to conform precisely to specified accounting guidelines or be separately reported if they would not influence reasonable decisions. Faithful representation suggests that information provided in financial statements must reflect the substance of the underlying transactions, which may differ from their legal form. Information must be complete, neutral (unbiased), and free from material error. Ex: inventory account of a company that sells computer equipment would include items that are held for sale to customers.