09 19 Lecture Notes - Financial Statement.docx

3 Pages

Business Administration
Course Code
Business Administration 2257
Baldwin Wallace

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th September 19 rd Quiz 2 – covers Chapter 3 – Due October 3 ACP #1 – Due September 26 th - Posted on WebCT - Handwritten and stapled - Include name, student # and seminar section (Thursday @ 4) - Drop at front of room before lecture. What is accounting? Quantitative information (measured using a single unit) about an entity that is communicated to others. Textbook definition: The process of identifying, measuring and communication economic information to various users. Objectives of Financial Reporting Overall objective – provide information for decision making - Who are decision makers? - What kind of decisions do they want to make? - When do they want to make these decisions? Users of Accounting Information Internal – Management, Employees, Human Resources External – [Current and potential owners current owners want to make sure their company will continue to be successful and potential want to make sure the company will be around for years], [banks, creditors, suppliers, want to make sure you are financially sound and will be able to sell product and make payments] financial analysts, government agencies, trade organizations, [customers/users for example, if Blackberry is having problems a customer may be less likely to buy a Blackberry because they may not be able to use it in a few years], [donors want to make sure their money is going where the company says it will] Decisions Made with Financial Information Operating activities [decisions made by manager type] – add new product line or service, build a new plant, start new business, cancel service, close divisions Investing activities – Investing, donate, sell shares or bonds, extend credit, loan Financing activities – Borrow, loan Qualitative Characteristics While the focus of accounting is on counting and measurement, there are certain qualitative characteristics that are important: Relevance – something may not be relevant to one decision, but it is to another Reliability - Verifiability – can someone else get the same numbers easily? - Representational faithfulness Comparability and consistency - using the same accounting policies year after year (first note in the statement) Understandability – the presumption that the person reading the financial statement has a basic knowledge of business or accounting (that you understand what “accounts payable” etc. are) Materiality – sort of quantitative, but also a judgement… A threshold – “the amount above which it would have a significant impact or effect on your decision” Losing $30 may impact what you want to do today – what/if you eat. A company like RIM (Blackberry) losing $30 has no real impact. The impact the error has on the company – if it’s below the threshold, they don’t make adjustments (they may add them all together though and if that’s above, they may ask for an adjustment) Cost/benefit E2-1, p 75 Some assumptions made about the Financial Statements Economic entity – what the statement is for (personal information should not be included) Time period – at least annual – public companies are quarterly (may have large loans, but also for their own internal needs Going concern – assuming the company will never die Cost principle – everything is recorded at cost (what we paid for it) Monetary unit – usually the dollar Classified Balance Sheet Also known as the Statement of Financial Position Summarizes the as
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