General Purpose Financial Reporting Objectives

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What is the main objective of general purpose financial reporting?

To show the value of a reporting entity

To make decisions about buying, selling, or holding equity and debt instruments

To provide information that helps existing and potential investors, lenders, and other creditors to estimate the value of the reporting entity (correct)

To influence management’s actions that affect the use of the entity’s economic resources

What are the decisions that existing and potential investors, lenders, and other creditors need to make based on financial reporting?

Decisions about exercising rights to vote on management’s actions

Decisions about providing or settling loans and other forms of credit (correct)

Decisions about buying luxury items

Decisions about expanding their social network

According to the passage, what do general purpose financial reports provide information about?

The value of a reporting entity

How efficiently and effectively the entity’s management and governing Board have discharged their responsibilities

The economic resources of the entity and changes in those resources (correct)

The social media activities of the entity

What is the purpose of showing information about the economic resources of the entity and claims against the entity?

To help existing and potential investors, lenders, and other creditors estimate the value of the reporting entity Signup and view all the answers

What is the primary outcome that existing and potential investors, lenders, and other creditors expect to depend on for their decisions?

The returns from their investments Signup and view all the answers

According to the passage, what are general purpose financial reports not designed to show?

The value of a reporting entity Signup and view all the answers

What type of users are primarily directed to general purpose financial reports?

Investors, lenders, and other creditors Signup and view all the answers

How can information about the nature and amounts of a reporting entity’s economic resources and claims help users?

To identify the reporting entity’s strengths and weaknesses Signup and view all the answers

Why do users of financial reports need to know the nature and amount of resources available for use in a reporting entity’s operations?

To assess management's stewardship of the entity's economic resources Signup and view all the answers

What can help users to understand the return that a reporting entity has produced on its economic resources?

Information about the company's past financial performance Signup and view all the answers

Why is information about the variability and components of a reporting entity’s return important?

To assess management's stewardship of the entity’s economic resources Signup and view all the answers

Who primarily relies on general purpose financial reports for obtaining financial information about a reporting entity?

Management Signup and view all the answers

What type of financial performance information helps users to understand the return that a reporting entity has produced on its economic resources?

Information about the company's past financial performance Signup and view all the answers

What helps users to assess management’s stewardship of a reporting entity’s economic resources?

Information about past financial performance Signup and view all the answers

How do changes in a reporting entity’s financial performance and from other events or transactions affect users?

To properly assess both the prospects for future net cash inflows to the reporting entity and management’s stewardship of the entity’s economic resources. Signup and view all the answers

What kind of cash flows result from using several resources in combination to produce and market goods or services to customers?

Indirect cash flows Signup and view all the answers

Which of the following is an example of a right that corresponds to an obligation of another party?

A forward contract to buy an economic resource on currently favorable terms Signup and view all the answers

What is an example of a right that does not correspond to an obligation of another party?

Rights over physical objects, such as property, plant, and equipment Signup and view all the answers

What represents a right that exists momentarily until the entity consumes the goods or services?

A right to obtain the economic benefits produced by goods or services Signup and view all the answers

Which of the following is an example of a right to use a physical object?

Rights over physical objects, such as property, plant and equipment or inventories Signup and view all the answers

What type of rights correspond to an obligation of another party in financial reporting?

Rights to receive cash Signup and view all the answers

Which example represents a right over physical objects in financial reporting?

Rights over physical objects, such as property, plant and equipment or inventories Signup and view all the answers

What is required for a right to be considered an asset of an entity?

The right must have the potential to produce economic benefits beyond those available to all other parties and must be controlled by the entity. Signup and view all the answers

Why are debt instruments or equity instruments repurchased and held by the reporting entity not considered economic resources of that entity?

Because they are not controlled by the entity. Signup and view all the answers

How are related rights often treated for accounting purposes?

As a single unit of account that is a single asset. Signup and view all the answers

What is the economic resource according to the passage?

The set of rights arising from legal ownership of a physical object. Signup and view all the answers

When is it uncertain whether an asset exists?

When it is uncertain whether a right exists, for example in a dispute between entities. Signup and view all the answers

What entitles an economic resource to produce economic benefits for an entity?

Potential to produce economic benefits in at least one circumstance beyond those available to all other parties. Signup and view all the answers

How does legal ownership of a physical object account for the set of rights according to the passage?

It accounts for them as a single asset. Signup and view all the answers

In what circumstance does an economic resource have the potential to produce economic benefits?

When it would produce economic benefits beyond those available to all other parties in at least one circumstance. Signup and view all the answers

How can information about the nature and amounts of a reporting entity’s economic resources and claims help users?

By enabling users to assess management’s stewardship of a reporting entity’s resources. Signup and view all the answers

What is necessary for an asset to exist?

Existence of rights associated with it. Signup and view all the answers

General Purpose Financial Reporting Objectives

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Questions and Answers

What is the main objective of general purpose financial reporting?

What are the decisions that existing and potential investors, lenders, and other creditors need to make based on financial reporting?

According to the passage, what do general purpose financial reports provide information about?

What is the purpose of showing information about the economic resources of the entity and claims against the entity?

What is the primary outcome that existing and potential investors, lenders, and other creditors expect to depend on for their decisions?

According to the passage, what are general purpose financial reports not designed to show?

What type of users are primarily directed to general purpose financial reports?

How can information about the nature and amounts of a reporting entity’s economic resources and claims help users?

Why do users of financial reports need to know the nature and amount of resources available for use in a reporting entity’s operations?

What can help users to understand the return that a reporting entity has produced on its economic resources?

Why is information about the variability and components of a reporting entity’s return important?

Who primarily relies on general purpose financial reports for obtaining financial information about a reporting entity?

What type of financial performance information helps users to understand the return that a reporting entity has produced on its economic resources?

What helps users to assess management’s stewardship of a reporting entity’s economic resources?

How do changes in a reporting entity’s financial performance and from other events or transactions affect users?

What kind of cash flows result from using several resources in combination to produce and market goods or services to customers?

Which of the following is an example of a right that corresponds to an obligation of another party?

What is an example of a right that does not correspond to an obligation of another party?

What represents a right that exists momentarily until the entity consumes the goods or services?

Which of the following is an example of a right to use a physical object?

What type of rights correspond to an obligation of another party in financial reporting?

Which example represents a right over physical objects in financial reporting?

What is required for a right to be considered an asset of an entity?

Why are debt instruments or equity instruments repurchased and held by the reporting entity not considered economic resources of that entity?

How are related rights often treated for accounting purposes?

What is the economic resource according to the passage?

When is it uncertain whether an asset exists?

What entitles an economic resource to produce economic benefits for an entity?

How does legal ownership of a physical object account for the set of rights according to the passage?

In what circumstance does an economic resource have the potential to produce economic benefits?

How can information about the nature and amounts of a reporting entity’s economic resources and claims help users?

What is necessary for an asset to exist?

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