Chapter 2:

Neutrality – is there any biased when preparing the financial statements - you want net income as high as possible - its better to understate the assets then overstate them

Comparibility – is comparing 2 companies. Ex – west jet to air Canada
Consistency – is looking at 2 companies from one accounting period to another.

Materiality – materiality is used by an investor or user to make a decision in a company

Assets – provide company with future benefits such as cash, a/r, inventory, supplies, prepaid expense (by paying something in advance you have the benefit of it protecting you for the time period, once you use it, it is no longer an asset.

Current assets – must to converted to cash/sold/used up/consumed in the business within the year. Listed in order of liquidity. Ex: inventory, a/r, office supplies, temporary investments, prepaid expense

Land doesn’t depreciate in value because it increases in price as opposed to equipment and buildings. Accumulated depreciation is a contra-asset

Property, plant, equipment

Land 100
Building 50
Less accum dep 10
Net book value 40
Total PPE 140

Current Liabilities – obligations that must be settled within 1 year of the balance sheet date. Ex: a/p, wages payable, current portion of bank, loan, interest payable. Anything beyond a year is a long-term liability. Ex: bank loans payable, mortages payable, notes payable (depends on date owed)

Unearned revenue is a liability

Order of liquidity:
Cash
Temporary investment
A/r
Merchandise inventory
Prepaid expense

Only current assets have to be listed in order of liquidity

Revenue examples : sales interest revenue sales fee
Expenses must be matched to revenue - cogs - rent expense - insurance expense - depreciation expense prepaid expense is the only