2.4 Financial statments Flashcards
What is the cost principal?
aka historic cost principal. amount paid for the asset at the time of purchase
What’s the revenue recognition principal?
Revenue should be recognized (put into books) when EARNED not when received
What’s the matching principal?
Expenses recognized when incurred not when paid
Whats the objectivity principal?
all amounts must be objective and verifiable. aligned to the cost principal
Consistency principal?
once a principal is adopted it should be used in future years
materiality principal
the exception to the matching principal the financal reports only have to include information that will be significant material to the user
balance sheet definiton
snap point in time photo
Balance sheet formulas
assets = liabilities + owner’s equity
Shareholders equity = share capital + retained earnings
income statement
period of time video
income statement formula
revenue - expenses = NET income
straight line depreciation method
NOT tax deductable.
annual depreciation expense = cost - salvage value/ estimated life
What’s a limited partnership
general and limited partners have the same income status
What accounting principal determins what amount wil be recorded on the companys balance sheet at the time of purchase?
cost principal
recognizing expenses as they incuer rather than when they’re paid for is an example of what principal
matching principal
On a balance sheet inventories would be classified under
current assets
