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CFAS_Quick_Overview

The document provides an overview of financial reporting, outlining its purpose to deliver useful financial information to investors, lenders, and creditors. It details the qualitative characteristics of financial information, elements of financial statements, recognition criteria, measurement bases, and the going concern assumption. Additionally, it distinguishes between accrual and cash basis accounting and presents the accounting equation as a fundamental principle of double-entry accounting.

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3 views

CFAS_Quick_Overview

The document provides an overview of financial reporting, outlining its purpose to deliver useful financial information to investors, lenders, and creditors. It details the qualitative characteristics of financial information, elements of financial statements, recognition criteria, measurement bases, and the going concern assumption. Additionally, it distinguishes between accrual and cash basis accounting and presents the accounting equation as a fundamental principle of double-entry accounting.

Uploaded by

VI Tomon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CFAS Quick Overview

1. Purpose of Financial Reporting:

- Objective: To provide financial information that is useful to existing and potential investors,

lenders, and other creditors in making decisions about providing resources to the entity.

- Key Users: Investors, lenders, creditors.

- General-Purpose Financial Statements: Provide information about the financial position,

performance, and changes in financial position.

2. Qualitative Characteristics of Financial Information:

- Fundamental Qualitative Characteristics:

- Relevance: Information is relevant when it helps users make decisions.

- Faithful Representation: Information must be complete, neutral, and free from error.

- Enhancing Qualitative Characteristics:

- Comparability: The ability to compare financial information over time and across entities.

- Verifiability: Information is verifiable if different knowledgeable and independent observers can

reach a consensus.

- Timeliness: Information should be available in time for decision-making.

- Understandability: Information should be presented clearly and concisely.

3. The Elements of Financial Statements:

- Assets: Resources controlled by the entity that are expected to provide future economic benefits.

- Liabilities: Obligations of the entity arising from past events, resulting in an outflow of resources.

- Equity: The residual interest in the assets after deducting liabilities (A - L = E).

- Revenue: Inflows of economic benefits resulting from the normal operating activities.
- Expenses: Outflows of economic benefits resulting in a decrease in equity.

4. The Recognition Criteria for Financial Statements:

- Recognition: An item is recognized when:

- It is probable that future economic benefits will flow to or from the entity.

- The item can be measured reliably.

5. Measurement Bases:

- Historical Cost: The amount paid for an asset at the time of acquisition.

- Fair Value: The amount for which an asset could be exchanged, or a liability settled, between

knowledgeable, willing parties in an arm's length transaction.

- Current Cost: The amount that would be paid to acquire an asset in the market at present.

- Value in Use: The present value of future cash flows expected to be derived from an asset.

6. Going Concern Assumption:

- The assumption that an entity will continue to operate for the foreseeable future unless there is

evidence to the contrary.

7. Accrual vs. Cash Basis Accounting:

- Accrual Basis: Revenue and expenses are recognized when they occur, not when cash is

received or paid.

- Cash Basis: Revenue and expenses are recognized only when cash is received or paid.

8. The Accounting Equation:

- Assets = Liabilities + Equity

- This is the foundation of double-entry accounting and shows the relationship between what the

business owns, owes, and the owner's interest.


Key Terms to Remember:

- Financial Position: Refers to the total assets, liabilities, and equity of the company.

- Profit or Loss: The result of the business activities, showing if the company made money or

incurred a loss.

- Fair Value Hierarchy: Levels of inputs used in measuring fair value (Level 1: quoted prices, Level

2: observable data, Level 3: unobservable inputs).

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