Business Activities and Their Measurement

Study Notes

Accounting measures a company's activities by creating records of assets, liabilities, stockholders’ equity, revenues, expenses, and dividends.
Accurate records are essential for understanding the performance and financial position of a company.

Assets: Total resources of a company that benefit future operations, including cash, supplies, inventory, buildings, land, and investments.
Revenues: Amounts recorded when a company sells products or provides services.

Statement of Stockholders’ Equity: Summarizes changes in stockholders’ equity over time, calculated as common stock plus retained earnings.
Balance Sheet: Presents the financial position on a specific date. The equation is:
- Assets = Liabilities + Stockholders’ Equity
Example balance sheet likely lists various asset categories like cash and accounts receivable, as well as liabilities like accounts payable and other debts.

Operating Activities: Include revenue and expenses. Collecting cash from customers is recorded as an operating activity due to its relation to revenues.

Net income from the income statement is reflected in the statement of stockholders' equity, showing its impact on retained earnings.

Provides a foundation for the development of accounting standards and interpretation of accounting information.

Fundamental Characteristics:
- Relevance: Information must be useful for decision-making.
- Faithful Representation: Information must accurately depict the company's financial condition.
Enhancing Characteristics:
- Comparability, verifiability, timeliness, and understandability enhance the usefulness of financial information.
Cost-effectiveness Constraint: The benefits of providing information should exceed the costs of obtaining it.