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[COMMERCE 1AA3] - Midterm Exam Guide - Ultimate 15 pages long Study Guide!


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Study Guide
Midterm

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McMaster
COMMERCE 1AA3
MIDTERM EXAM
STUDY GUIDE

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Accounting Lesson 1
External to Business
Investors
Creditors
Government
Non-profit Organization
Customers
Suppliers
Employees
Internal to Business
Management
Financial Statements
Financial Statements- are the business documents that companies use to report the result of
their activities to various user groups. The system of accounting produces the following
statements:
1. Income statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flow
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The Income Statement
Also called the Statement of Operations of Earnings
Report two main categories
o Revenue and gains
Increase in income from ongoing operations
Revenue persistent in nature
Gains are not as frequent
o Expenses and losses
Expenses are reduction in income from ongoing operations
Losses are reductions in income from peripheral operations
“hows the otto lie
o Net income or net loss for the period
Net income is the most important item in the financial statements
Reports revenue and expenses
o These are accounts are only reported on the Income Statement
Shows net income or net loss
o If revenue exceeds expenses, company has net income
o If expenses exceed revenues, company has net loss
Statement of Retained Earnings
Retained earnings is portion of net income company has kept over a period of years
Positive balance indicates revenues exceeded expenses
Accumulated deficit indicates expenses have exceeded revenues
Net income (or net loss) flows from the Income Statement to the Statement of Retained
Earnings
Open with beginning retained earning balances
Adds net income (or subtract net loss)
o Flows from the Income Statement
Subtract dividends
Reports ending retained earnings balance
The Balance Sheet
Also called the Statement of Financial Position
Reports
o Assets
o Liabilities
o Stockholdes’ euity
A= L+EQ
A-L=EQ
Statement of Financial Position
Recognition (Identification)
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