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Management Core
MGCR 211
David B.Farber

Accounting Chapter 1  Businesses earn profits for owners o Sell products and/or invest in other businesses  Accounting information system in which underlying economic conditions of organizations and, indeed of individuals- are recorded, summarized, reported, and understood o It provides the framework around which people and organizations make decisions  Financial statements management’s reports to the company’ owners that summarize how the company performed during a particular period o They also tell users what the company owns, debts and what is left over after the obligations are satisfied o Final set of documents produced at the end of an accounting period, they are included in a larger annual report (the main method management uses to report the result of the company’s activities during the year)  Financial information is captured by the accounting system is used in many different types of organization: profit seeking entities (corporations), governments, service entities (hospitals, academic institutions), not-for- profit charities/clubs  Almost every large business in Canada is a corporation, other forms of business also include sole proprietorships, partnerships, limited partnerships, and crown corporations  In all business organizations the owners make an initial investment in the business (cash/ property) o Sole proprietorships and partnerships this ownership interest is called the owner’s or partner’s capital, in a corporation it is called shareholders’ equity and its represented by shares (document that represents a small part of ownership in the corporation) therefore owners of corporations called shareholders (stockholders)  Advantages of corporationsownership is easily transferable  Corporations whose stocks are traded on a public stock exchange are called publicly traded corporations  Privately held corporations shares are held by a small number of individuals not traded publicly  Shareholders typically not involved in the day-to-day proceedings of business because of this they usually elect a board of directors  BoD then hire individuals to senior executive positions to manage operations  The senior executives and the managers they hire together are known as management (management then reports to the shareholders on a quarterly basis last quarter has financial statements that cover the entire year)  Accounting primarily concerned with communication of financial information to users o Internal Users  Management and the Board of directors  Primary internal users, use accounting information to make decisions o External users  Shareholders and potential investors  Need information that makes it possible to assess how well management has been running the company  Want to make decisions about buying more shares or selling some or all of the shares they already own  Analyze current share prices (reflected on stock exchange) and compare with the original price they paid for the shares  Also compare price with underlying value of company (reflected in the financial statements)  Creditors  Come from three major groups 1. Those who sell goods or services willing to wait a short period for payment ex. Suppliers, employment, government  These users focus on the short-term cash level (want to be paid) 2. Financial institutions ex. Banks that have loaned money to the company  Focus on the short-term cash level but sometimes look further into the future (want repayment of the principal of the debt but also payment of interest) 3. Investors who have purchased long-term debt instruments ex. Corporate bonds from the company  Similar to banks, have interest in both long- term and short-term cash level  Regulators  Government has regulations for how a business becomes incorporated and for its conduct after incorporation (interested in ensuring company follows regulations)  Stock exchange on which shares are traded have regulations about the timing and format of information that companies must convey to them and to investors  Environmental groups also monitor the activities of companies, as they want to ensure that environmental standards are respected  Taxing authorities  Canada revenue agency (CRA) federal government established collection agency o Parliament creates rules for how taxable income should be measured  Other users  Direct competitor analyze competitors strength and future plans  Security analysts and credit-rating agencies use the financial statements to provide information about the strengths and weaknesses of companies to people who want to invest  Labour unions need to understand the company’s financial health in the order to negotiate labour contracts with management  Journalists press releases  When management begins the task of measuring, collecting, recording, and reporting financial information for users, it needs some guidelines, to follow so that all users can read and understand the financial statements o IASB (International Accounting Standards Board) based in London set recommendations and standards, these are recorded in the CICA handbook (Canadian Institute of Chartered Accountants)  These standards have the force of law in Canada and recognized by both federal and provincial statutes that regulate business corporations o until the adoption of the IFRS (international financial reporting standards) the CICA was responsible for setting standards in Canada o FASB (Financial Accounting Standards Board) sets accounting standards in the U.S. o The set of accounting principles that corporations use is referred to as GAAP (generally accepted accounti
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