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Environment and Theoretical Structure of Financial Accounting

The primary function of financial accounting is to provide relevant and reliable financial information to users external to the business enterprise. The focus of financial accounting is on the information needs of investors and creditors. These users make critical resource allocation decisions that affect the nation's economy. The primary means of conveying financial information to external users is through financial statements and related notes.

In this chapter you explore important topics such as the FASB's conceptual framework that serve as a foundation for a more detailed study of financial statements, the way the statement elements are measured, and the concepts underlying these measurements and related disclosures.

Describe the function and primary focus of financial accounting.

Explain the difference between cash and accrual accounting.

Define generally accepted accounting principles (GAAP) and discuss the historical development of accounting standards.

Explain why the establishment of accounting standards is characterized as a political process.

Explain the purpose of the FASB's conceptual framework.

Identify the objectives of financial reporting, the qualitative characteristics of accounting information, and the elements of financial statements.

Describe the four basic assumptions underlying GAAP.

Describe the four broad accounting principles that guide accounting practice.

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