,Business assumptions (MAGE): Monetary unit: assumes that dollar is the most effective means to communicate
Monetary unit assumptions economic activity
● If an economic activity cannot be expressed in dollars, then it is not recorded
Accounting period on the accounting systems
Going concern Accounting period: economic information can be meaningfully captured and
communicated over short periods of time
Economic entity
Going Concern: business continuing to operate in the foreseeable future through efficient
resources available
Economic Entity: financial activities of a business can be separated from the financi
activities of the business owners
● Navigate personal affairs from accounting information
,Income Statement Income statement: reports a company expenses and revenues
● Expense: a decrease in resources resulting from the sale of goods or service
Balance Sheet
➢ Matching principle: expenses should be recorded in the period
Cash flow Statement resources are used to generate revenue
Objectives of Financial Reporting ● Revenue: an increase in resources resulting from the sale of goods or service
➢ Revenue recognition principle: revenue should be recorded when a
resource has been earned and not just when cash is received
REVENUE (sales/services) - EXPENSES (interest) = PROFIT/LOSS
Balance sheet: reports a business’ assets, liabilities and equity
● Assets: resource of a business that provides future economic benefits
➢ Cost principle: assets are recorded and reported at the cost paid to
acquire them
● Liability: obligation of a business that results from past transaction and will
require a portion of economic resources at a future date
ASSETS= LIABILITIES + EQUITY
● Equity: Assets - liabilities, represents the share of assets that are claimed by
the business’ owner
➢ Contributed capital: resources of investors put into a business in
exchange for an ownership interest
➢ Retained earrings: profits that are retained in the business
Cash flow Statement: reports on business’ cash inflows and outflows
● Financing Activities: raising funds through creditors, contributions from
investors
:
● Investing Activities: buying and selling of revenue-generating assets
● Operating Activities: costs associated with operations, such as purchase of
supplies, payment of employees and the sales of product
Objectives of Financial Reporting:
,
Monetary unit assumptions economic activity
● If an economic activity cannot be expressed in dollars, then it is not recorded
Accounting period on the accounting systems
Going concern Accounting period: economic information can be meaningfully captured and
communicated over short periods of time
Economic entity
Going Concern: business continuing to operate in the foreseeable future through efficient
resources available
Economic Entity: financial activities of a business can be separated from the financi
activities of the business owners
● Navigate personal affairs from accounting information
,Income Statement Income statement: reports a company expenses and revenues
● Expense: a decrease in resources resulting from the sale of goods or service
Balance Sheet
➢ Matching principle: expenses should be recorded in the period
Cash flow Statement resources are used to generate revenue
Objectives of Financial Reporting ● Revenue: an increase in resources resulting from the sale of goods or service
➢ Revenue recognition principle: revenue should be recorded when a
resource has been earned and not just when cash is received
REVENUE (sales/services) - EXPENSES (interest) = PROFIT/LOSS
Balance sheet: reports a business’ assets, liabilities and equity
● Assets: resource of a business that provides future economic benefits
➢ Cost principle: assets are recorded and reported at the cost paid to
acquire them
● Liability: obligation of a business that results from past transaction and will
require a portion of economic resources at a future date
ASSETS= LIABILITIES + EQUITY
● Equity: Assets - liabilities, represents the share of assets that are claimed by
the business’ owner
➢ Contributed capital: resources of investors put into a business in
exchange for an ownership interest
➢ Retained earrings: profits that are retained in the business
Cash flow Statement: reports on business’ cash inflows and outflows
● Financing Activities: raising funds through creditors, contributions from
investors
:
● Investing Activities: buying and selling of revenue-generating assets
● Operating Activities: costs associated with operations, such as purchase of
supplies, payment of employees and the sales of product
Objectives of Financial Reporting:
,
