Financial Accounting


1. What is the primary objective of financial reporting for external users?
The primary objective of financial reporting for external users is to provide useful financial and economic information about a business to help external parties, primarily investors and creditors, make sound financial decisions. While these users are expected to have a reasonable understanding of accounting concepts and procedures they are usually interested in information to assist them in projecting future cash inflows and outflows of a business.

2. Define the following:
a) Asset An asset is a probable future economic benefit              
owned by the entity as a result of past transactions
b) Current Asset         A current asset is an asset that will be used or turned into cash within one year; inventory is   always considered a current asset regardless of how long it takes to produce and sell the inventory.

c) Liability A liability is a probable debt or obligation of the entity as a result of past transaction, which will be paid with asset or services.

d) Current Liability A current liability is a liability that will be paid in cash (or other current assets) or satisfied by providing services within the coming year.                  
e) Contributed Capital
f) Retained Earnings Retained earnings are the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business.

3. Explain what the following accounting terms   mean:
a) Separate-entity assumption The separate-entity assumption requires that business transactions are separate from the transactions of the owners.
b) Unit-of-measure assumption The unit-of-measure assumption requires information to be reported in the national monetary unit. ????
c) Continuity Assumption Under the continuity business are assumed to operate into the foreseeable future.
d) Historical cost principle The historical cost principle requires...