Concepts of Financial Accounting PDF

2 SU 1: External Financial Statements 1.1 Concepts of Financial Accounting The Objective of General-Purpose Financial Reporting The objective of general-purpose financial reporting is to report financial information that is useful in making decisions about p...

2 SU 1: External Financial Statements 1.1 Concepts of Financial Accounting The Objective of General-Purpose Financial Reporting The objective of general-purpose financial reporting is to report financial information that is useful in making decisions about providing resources to the reporting entity. The information reported relates to the entity’s economic resources and claims to them (financial position) and to changes in those resources and claims. Information about economic resources and claims helps to evaluate liquidity, solvency, financing needs, and the probability of obtaining financing. Users need to differentiate between changes in economic resources and claims arising from the entity’s performance (income statement) and other events and transactions, such as issuing debt and equity (balance sheet). Information about financial performance is useful for Understanding the return on economic resources, its variability, and its components Evaluating management Predicting future returns For general-purpose financial statements to be useful to external parties, they must be prepared in conformity with accounting principles that are generally accepted in the United States (GAAP). The CMA exam also tests some knowledge of International Financial Reporting Standards (IFRS). Significant differences between international standards and U.S. GAAP are detailed in Appendix B. If an exam question does not distinguish between GAAP and IFRS, use GAAP. Financial accounting differs from management accounting. Management accounting assists management decision making, planning, and control. Management accounting information is therefore primarily directed to specific internal users. Management accounting topics are covered in Study Units 7 through 16. Copyright © 2022 Gleim Publications, Inc. All rights reserved. Duplication prohibited. Reward for information exposing violators. Contact [email protected].