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Objective of Financial Reporting
To provide useful economic information to external users for decision making.
- Separate Entity: Activities of the business are separate from activities of owners.
- Continuity: The entity will not go out of business in the near future.
- Unit of Measure: Accounting measurements will be in US dollars.
Historical Cost Principle
Requires assets to be recorded at historical cost that, on the date of transaction, is cash paid plus the current dollar value of all non cash.
- Events recorded as part of accounting process.
- External Events: exchanges of assets and liabilities between the business and one or more other parties.
- Internal Events: Not exchanges between the business and other parties but have a direct effect on the accounting entity.
Organized format companies use to accurate money effect on transactions.
Every transaction affects at least 2 accounts.
- Debts always on left side
- Credits always on Right side
Accounting method for expressing the effects of a transaction on accounts.
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