Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Accounting by using this notes. If you are struggling with Financial Accounting use this not...
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What is the objective of general-purpose financial reporting? book
Paragraph 1.2
The objective of general-purpose financial reporting is to
• provide financial information about the reporting entity
• that is useful to existing and potential investors, lenders and other creditors
OBJECTIVE
• in making decisions relating to providing resources to the entity.
Those decisions involve decisions about:
a) buying, selling or holding equity and debt instruments;
b) providing or settling loans and other forms of credit; or
c) exercising rights to vote on, or otherwise influence, management’s actions that affect the
use of the entity’s economic resources.
Decisions by investors about buying, selling or holding equity and debt
instruments depend on…
Paragraph 1.3
Returns that existing and potential investors, lenders and other creditors expect.
What are the returns? Expectations depend on:
- Dividends 1. assessment of the amount,
- Principal payments 2. timing and uncertainty of (the prospects for)
- Interest payments future net cash inflows to the entity and
- Market price increases 3. management’s stewardship of the entity’s
economic resources.
What are the information needs of investors, lenders and other creditors
to assess an entity’s prospects for future net cash inflows?
Paragraph 1.4
(a) the economic resources of the entity, claims against the entity and changes in those resources
and claims (see paragraphs 1.12–1.21); and
(b) how efficiently and effectively the entity’s management and governing board have discharged
their responsibilities to use the entity’s economic resources (see paragraphs 1.22–1.23).
, List 3 other groups of users of financial information.
Paragraph 1.10
Existing and potential investors Regulators
Lenders and other creditors Members of the public
Management
Financial reports are not based on exact depictions. On what is it based
then?
Paragraph 1.11
Rather than exact depictions
Estimates
Judgements
Models
What gives the information about an entity’s financial position?
Apart from financial position, what other information is financial report
providing?
Paragraph 1.12
General purpose financial reports provide information about
1. the financial position of a reporting entity, which is information about the entity’s
economic resources and the claims against the reporting entity.
2. the effects of transactions and other events that change a reporting entity’s economic
resources and claims
Both types of information provide useful input for decisions relating to providing resources to an
entity.
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