Chapter 6- Compound Financial Instruments (unfinished)

  1. What is a financial instrument?
    It is any conrtract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.
  2. What are the characteristics of a financial instrument?
    • There must be a contract
    • There are at least two parties to the contract
    • The contract shall give rise to financial asset of one party and financial liability or equity instrument of another party
  3. Give examples of financial instruments
    • Cash in the form of notes and coins
    • Cash in the the form of checks
    • Cash in bank
    • Trade accountss
    • Notes and loan
    • Debt securities
    • Equity securities
  4. What is a financial liability?
    • It is any liability that is a contractual obligation:
    • To deliver cash or other financial asset to another entity
    • To exchange financial instruments with another entity under conditions that are potebtially unfavorable
  5. Give examples of financial liabilities
    • Trade accounts payable
    • Notes payable
    • Loans payable
    • Bonds payable
  6. Why are items such as deferred revenue and warranty obligations not a financial liabilty?
    Because the outflow of economic benefits associated with them is the dfelivery of goods and services rather than the contractual obligation to pay cash or another financial asset.
  7. Why are contractual obligations not financial liabilities?
    Because the obligations do not arise from contracts
  8. What is an equity instrument?
    It is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Card Set
Chapter 6- Compound Financial Instruments (unfinished)
Financial Accounting