CF FS and Reporting Entity
CF FS and Reporting Entity
CF FS and Reporting Entity
Financial statements provide information about economic resources of the reporting entity, claims against the
entity and changes in the economic resources and claims.
Reporting period is the period when financial statements are prepared for general purpose financial reporting.
Accounting assumptions are the basic notions or fundamental premises on which the accounting process is
based.
Going concern
Only underlying assumption mentioned in the Conceptual Framework for Financial Reporting.
The ability of the entity to continue in operation for the foreseeable future.
Assumption:
o The historical cost principle is credible.
o Depreciation and amortization policies are justifiable and appropriate.
o The current and noncurrent classification of assets and liabilities is justifiable and significant.
o Relatively stable economic, political and social environment.
o Not be followed when an entity in bankruptcy reports financial results.
The valuation of a promise to receive cash in the future at present value is valid because of the accounting
concept of going concern.
Justifies the usage of accruals and deferrals.
Accounting period
Serves as the basis for preparing financial statements at regular artificial points in time.
In measuring financial performance, accrual accounting is used because it provides a better indication of
ability to generate cash flows than cash basis.
Residual equity- The equation “assets minus liabilities minus preference equity equals ordinary equity”
Entity- primary accounting objective is fair presentation of the financial performance of the entity.