Chapter 1

Review

​in general, financial statements are compromised of the following documents:

• statement of the financial position;
• statement of cash flows;
• notes to financial statements;
• income statement;

Inly events with a monetary implication (potential impact on the cash situation) must be recorded in financial accounting.

[true]

financial accounting offers the great advantage of being completely objective and thus leaves no room for subjectively in decision making

[false]

bookkeeping is a subset of ...

financial accounting

why do decision makers use accounting information and for what purposes?

in this case I assume that government, regulatory agencies and tax authorities are ment with decision makers. Decision makers use accounting information for:

resource allocation;

decision making with regard to stimulating the economy;

decision making with regard to taxation policies and assessments;

calculation of economical statistics.

why have standards of reporting emerged that constrain the way events are recorded in accounting?

these standards enhance the qualitative characteristics of useful financial information. The qualitative characteristics are:

relevance: financial information is only useful if it helps understand the past and predicts the future. The relevance of information is affected by its nature and materiality. 'Information is material if omitting it or misstating it could influence decisions that users maken on the basis of financial information about a specific reporting entity.