AFM101 Lecture Notes - Lecture 1: Management Accounting, Cash Flow Statement, Retained Earnings
SchoolUniversity of Waterloo
DepartmentAccounting & Financial Management
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AFM101 Lecture 1 – Financial Statements (IS, SRE)
• Accounting: A system that identifies, measures, and communicates financial information that
both relevant and reliable to help users make better decisions
o Financial Accounting: Provides information to internal and external users
▪ Internal Users: Users of financial info within the business
▪ External Users: Users of financial into outside the business
o Management Accounting: Provides information to just internal users
How can we improve the efficiency of our business?
Should I invest in this business?
Can I keep my job at this business?
How much tax should the business pay?
Can the business repay a bank loan?
Can the business repay their debts?
▪ Forms of Business Organization:
o Proprietorship: 1 owner
o Partnership: 2+ owners
o Corporation: Many owners called “shareholders”
▪ Shareholders: Investors or organizations that invest cash (usually) into the
corporation in exchange for the corporation’s shares
Financial Statement Basics:
• Financial Statements: Documents produced by businesses (often at the end of an accounting
period) that display financial information for different users
o Income Statement: Displays how much money the business gained (or lost) over time
o Statement of Retained Earnings: Displays changes to the retained earnings account over
o Balance Sheet: Displays a “snapshot” of the financial position of a business at a
o Statement of Cash Flows: Displays changes to the cash account over time
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