1. Primary Objective of Financial Reporting
Provide information
for decision making
Extend credit $$??
Borrow $$??
Invest??
Loan $$??
Start new business??
Sell stocks or bonds??
LO1 2 2

2. Secondary Objectives of Financial Reporting
Reflect
prospective
cash receipts to
investors and
creditors A
FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICA
L F 12
ONE DOLLAR
WASHINGTON, D.C.
THIS NOTE IS LEGAL TENDER
FOR ALL DEBTS, PUBLIC AND PRIVATE
SERIES
1985
H 293
Reflect
prospective cash
flows to the
company A
FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICA
L F 12
ONE DOLLAR
WASHINGTON, D.C.
THIS NOTE IS LEGAL TENDER
FOR ALL DEBTS, PUBLIC AND PRIVATE
SERIES
1985
H 293
Assets = Liabilities + OE
Reflect the
company’s
resources and
claims to its
resources 2 2

3. Qualitative Characteristics
Understandability –
Relevance –
Reliability –
To those willing to take
the time to understand it
Has capacity to
make a difference
Represents what
it purports to
LO2 3 3 3

4. Qualitative Characteristics
between companies
Comparability
from one period to the next
Consistency 3 4 4

5. Qualitative Characteristics
Will it make a difference
to the decision maker?
Materiality
Conservatism
All else equal, choose
least optimistic estimate 3 5 5

6. Basic Structure of a Classified Balance Sheet
Current assets
+ Noncurrent (long-term) assets
Total assets
Current liabilities
+ Noncurrent (long-term) liabilities
+ Stockholders’ equity
Total liabilities and stockholders’ equity 5 7 7

7. Analysis of Liquidity Ability of company to pay debts as they
Of particular
interest to
bankers and
other
creditors
Ability of
company to
pay debts
as they
become due
Working
Capital
Current
Ratio
LO4 7 8 8

8. Other Elements of an Annual Report
Letter to stockholders
Description of company’s products and markets
Financial statements
Notes to financial statements
Report of independent accountants
Management discussion and analysis
Summary of significant accounting policies 21 21

9. End of Chapter 2