CH1 FINANCIAL

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Department
Accounting & Financial Management
Course
AFM 123
Professor
Peter Blake
Semester
Winter

Description
Chapter 1 Class Notes • Manufacturer is making desks/chairs so departments are going to include: accounting, purchasing, customer service, human resources, research & development, production, sales, marketing, finance, • Production: make stuff • R&B: better ways to make it • Sales: sell stuff Accounting • Liaise with production and know what is going on in order to see how much material and labour costs and record transactions as well as work with financing • Records business transactions basically as they occur (source documents - piece of paper that tells the accountant that something has been done) • Accountants role is to report all transactions to the organization • Accounting department produces the Financial Statement which consists of: • Income Statement - to see if the company is profitable or not • Cash Flows • Assets vs. Liabilities - what you own versus what you owe • Balance Sheet - states the assets, liabilities and equity Who cares? • Potential Investors - people who put their money into the company • Existing Owners - people who own the business • Employees - like to know how secure their job is • Banks - don’t own the business (loan money to a business at a rate, then they go out and raise it) History of Accounting • Double Entry Bookkeeping • Every business transaction gets recorded into two accounts (when one article is sold, you get cash; the sales account has been affected as well as the cash account) • Been around is the 1200s • Written down in a book in the 1400s in Italian • Start with a business reality: Shareholders equity at any point in time = assets - liabilities • Accounting Equation • Assets = Liabilities + Shareholders Equity • Debits = Credits • When DR CR↑ ↓ • Shareholder Equaition • SE = Revnue - Expenses + Capital (Shareholder investing in company) - Dividents • Assets + Equity + Dividents = Liabilities + Cash + Revenue • A + E + D = L + C + R (Always Eats Dates = Left Center Right) • When DR CR↑ ↓ E.g. Sell $1000 services for cash. What accounts and direction? • Sales go p by $1000 CR • Cash goes up by $1000 DR • This can happen because one is a debit account and the other is a credit account • Journal Entry: DR Cash $1000 CR Sales $1000 •General Entry: List of every account •General Ledger: Leeps running total sales •Trial Balance: Take totals for every account and prepares Fianncial Statement 1. Income Statement: need to know income for #2 2. Statement of Shareholders Equity: need shareholders equity total for #3 1. Balance Sheet 2. Statement of Cash Flow Income Statement •Starts off with Revenues •Less Expenses • Less expenses (negative), pre tax income (positive), income tax expense (hopefully positive), net income (loss) Shareholders Equity •Capital - common shares (once the money is put in the company has it - if a company is successful it is better to have this kind of share) and prefered shares (if company goes bankrupt is better to have this kind of share) •Retained Earnings • Income/loss since incorporration, money can be accessed through dividends (If $500 000 is made, that money is redistributed in the company) - less dividents paid • Opening Balance, January 1st; add income(loss) for year ended December 31st; Loss: dividends paid during year; Closing Balance December 31st Business Up Down Normal Balance Transaction Asset DR CR
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