Assignment 4
Primary Objective of Financial Reporting to External Users -correct answer_to provide useful
economic info about a business to help external parties (potential investors, lenders, and other
creditors) make sound financial decisions -You must understand accounting concepts to
understand how to use this info -Looked at by customers and suppliers -Mainly used to assess
the amount, timing, and uncertainty of a business's future cash inflows and outflows -Ex.
creditors and potential creditors need to assess a company's ability to pay interest of a loan
over time and pay back the principal amount of the loan when it is due -Ex. investors want to
look at ability to pay dividends and potential success to raise stock prices to sell relevant
information -correct answer_info that can influence a decision; it is timely and has predictive
and or feedback value -Info should be material in amount to be reported faithful representation
-correct answer_requires that info be complete, neutral, and free from error -Comparability,
verification, timeliness, and understandability is also very important how many assumptions do
accountants make when assessing a balance sheet? -correct answer_3 separate entity
assumption -correct answer_states that the business' transactions are separate from the
transactions of the owners -Ex. if an owner purchased property for personal use, it is NOT an
asset of the business going concern assumption -correct answer_states that businesses are
assumed to continue to operate into the foreseeable future, which is long enough to reach
contractual agreements -Ex. if there is a high likelihood that the company will go bankrupt then
its assets should be reported as if it were to be liquidated -Aka the continuity assumption
monetary unit assumption -correct answer_states that accounting info should be measured
and reported in the national monetary unit without any adjustment for changes in purchasing
power Mixed-Attribute Measurement Model -correct answer_applied to measuring different
assets and liabilities of the balance sheet -Most balance sheets are reported at the historical
cost cost (historical cost) -correct answer_the cash equivalent value of an asset on the date of
the transaction -Ex. assets are reported as the cash paid plus the dollar value of all non cash
considerations on the exchange date assets -correct answer_probable future economic
benefits owned by the entity as a result of a past transaction -Acquired to use in the operation
in the future for the company -Listed in order of liquidity order of liquidity -correct answer_how
assets are listed on the balance sheet; how soon an asset is expected to turn into cash or be
used current assets -correct answer_assets that will be used or turned into cash within one
year. Inventory is ALWAYS considered a current asset regardless of the time needed to
produce and sell it -Includes: -Cash -Short term investments in stocks and bonds of other
companies -Accounts receiveable -Supplies -Prepaid expenses- rent, insurance, advertising
-Other current assets (summary part) non current assets -correct answer_all other assets that
are to be used or turned into cash after the coming year -These include -Property and
equipment (land, buildings, equipment) -Long term investments in stocks and bonds of other
companies -Intangibles- non physical assets such as trademarks and patents liabilities
-correct answer_probable future sacrifices of economic benefits arising from a present
Primary Objective of Financial Reporting to External Users -correct answer_to provide useful
economic info about a business to help external parties (potential investors, lenders, and other
creditors) make sound financial decisions -You must understand accounting concepts to
understand how to use this info -Looked at by customers and suppliers -Mainly used to assess
the amount, timing, and uncertainty of a business's future cash inflows and outflows -Ex.
creditors and potential creditors need to assess a company's ability to pay interest of a loan
over time and pay back the principal amount of the loan when it is due -Ex. investors want to
look at ability to pay dividends and potential success to raise stock prices to sell relevant
information -correct answer_info that can influence a decision; it is timely and has predictive
and or feedback value -Info should be material in amount to be reported faithful representation
-correct answer_requires that info be complete, neutral, and free from error -Comparability,
verification, timeliness, and understandability is also very important how many assumptions do
accountants make when assessing a balance sheet? -correct answer_3 separate entity
assumption -correct answer_states that the business' transactions are separate from the
transactions of the owners -Ex. if an owner purchased property for personal use, it is NOT an
asset of the business going concern assumption -correct answer_states that businesses are
assumed to continue to operate into the foreseeable future, which is long enough to reach
contractual agreements -Ex. if there is a high likelihood that the company will go bankrupt then
its assets should be reported as if it were to be liquidated -Aka the continuity assumption
monetary unit assumption -correct answer_states that accounting info should be measured
and reported in the national monetary unit without any adjustment for changes in purchasing
power Mixed-Attribute Measurement Model -correct answer_applied to measuring different
assets and liabilities of the balance sheet -Most balance sheets are reported at the historical
cost cost (historical cost) -correct answer_the cash equivalent value of an asset on the date of
the transaction -Ex. assets are reported as the cash paid plus the dollar value of all non cash
considerations on the exchange date assets -correct answer_probable future economic
benefits owned by the entity as a result of a past transaction -Acquired to use in the operation
in the future for the company -Listed in order of liquidity order of liquidity -correct answer_how
assets are listed on the balance sheet; how soon an asset is expected to turn into cash or be
used current assets -correct answer_assets that will be used or turned into cash within one
year. Inventory is ALWAYS considered a current asset regardless of the time needed to
produce and sell it -Includes: -Cash -Short term investments in stocks and bonds of other
companies -Accounts receiveable -Supplies -Prepaid expenses- rent, insurance, advertising
-Other current assets (summary part) non current assets -correct answer_all other assets that
are to be used or turned into cash after the coming year -These include -Property and
equipment (land, buildings, equipment) -Long term investments in stocks and bonds of other
companies -Intangibles- non physical assets such as trademarks and patents liabilities
-correct answer_probable future sacrifices of economic benefits arising from a present
