Ch.1 [FINANCIAL ACCOUNTING AND ACCOUNTING STANDARDS] I. Essential characteristics of accounting are: a. The identification, measurement, and communication of financial information i. Financial statements b. Economic entities ii. Financial information c. Interested parties II. What is the purpose of information presented in notes to the financial statements? d. To provide disclosure required by GAAP III. Capital Allocation e. Financial reporting iii. Financial information a company provides to help users with capitol allocation decisions about the company f. Users iv. Investors and creditors use financial reports to make their capital allocation decisions v. Audience- are reasonably well-informed users g. Capital allocation vi. The process of determining how and at what cost money is allocated among competing interest vii. Interested in investors’ money to make good capital allocated decisions. h. An effective process of capital allocation is critical to a healthy economy, which… viii. Promotes productivity ix. Encourages innovation x. Provides an efficient and liquid market for buying and selling securities IV. Objective of accounting i. General purpose Financial statements xi. Provide the most useful information possible at the least cost 1. Equity investors are the primary user group j. Entity perspective xii. Companies viewed as separate and distinct from their owners k. Decision-usefulness xiii. Investors are interested in assessing the company’s 2. Ability to generate net cash inflows and 3. Managements ability to protect and enhance the capital providers investments V. Parties involved In