INFO. FOR BUSINESS DECISIONS - ACTG. 011 - SPRING 2007Slide 2-1

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Session 2The Conceptual Framework and Business
Transactions
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Statement of Financial Accounting Concepts 1
(1978)Objectives of Financial Reporting

• Useful information for users
• Information about future cash flows
• Information about the firms economic resources

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Assumptions of Financial Accounting

• Separate Entity
• Unit of measure
• Going concern
• Time period

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A Closer Look at the Balance Sheet

• Current assets
• Non-current assets
• Current liabilities
• Long-term debt
• Shareholders equity
• Contributed capital
• Retained earnings
• Dividends

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Principles of Financial Accounting

• Historical cost
• Revenue recognition
• Collection is assured
• Delivery has taken place
• Evidence of a customer arrangement
• Fixed price
• Matching principle
• Full disclosure

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Transactions

• External exchanges
• Internal exchanges
• Two or more accounts must be involved
• The accounting equation must remain intact
• Two sides to the transactionthey must be equal

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Key Terms and Ratios

• Terms
• SFAC 1
• Accounting EquationA L E
• Accounting assumptions
• Accounting principles
• Transactions
• Ratios
• Current ratiocurrent assets / current
  liabilities
• Financial leverage ratioavg. total assets / avg.
  S/E