The purpose and use of financial statements 1/15/2013 11:30:00 AM
Accounting is the information system that identifies and records the economic events of an organization,
and then communicates them to a wide variety of interested users.
Why does accounting matter?
Accounting is the language of business
Global economic systems depend on reliable and accurate financial reporting
Measures business activities
Process data into reports (financial statements)
Communicates results to decision makers
Users and uses of accounting
Accounting identifies and records the economic events of an organization and communicates to
There are two broad categories of users :Internal users
users of financial information
-- internal users of accounting information plan, organize, and run companies.
-- These include finance directors, marketing managers, human resource personal,
production supervisors, and company officers.
-- accounting provides internal reports: for example ▪ Pricing ▪ Strategic
▪ Employee compensation ▪ Capital budgeting
▪ Resource allocation
Investors and creditors are the main external users of accounting information
投资者- use accounting information to make decisions to buy, old, or sell their
-- Creditors 债权人- such as supplier and bankers, use accounting information to evaluate the risk of
granting credit 售出信贷 or lending money 贷款基金.
▪ Tax authorities
▪ Regulatory agencies 监管机构▪ Customers
▪ Labour unions 公会
▪ Economic planners ▪ Communities 社区
Forms of business organization
-- Owned by one person
-- small amount of money(capital) is needed to start
-- personally liable (responsible) for all debts of the business.
-- EX: air salons, plumbers, and mechanic , as well as farms and small retail store.
-- Owned by more than one person
-- often formed because one person does not have enough economic resources, or because partners
bring unique skills or resources.
-- each partner generally has unlimited liability for all debts of the partnership.
-- are typically used to organize retail and service business, including the professional practice of
lawyers, doctors, architects, engineers, and accountants. Corporation
-- receive shares to indicate your ownership claim, become owners of share (shareholds) by
investing relatively small amounts of money.
-- may be public or private.
-- More attractive than investing in a proprietorship or partnership because shares are easy to sell.
-- public corporation—commonly distribute 分配 their financial statements 财务报表 to
shareholds, creditors 债权人, other interested parties, and the general public upon request.
-- private corporation – do not issued publicly traded share.
-- Choose a proprietorship 所有权 or partnership, you are personally liable for all debts of the
business, Pay personal income tax on their respective share of the profits,
-- Shareholders enjoy limited liability since they only risk losing the amount that they have invested
in the companies share. Pay income taxed as separate legal entities on any corporate profits.
-- Combined number of proprietorships and partnerships in Canada is more than corporation 公司.
Types of business
Manufacturing business—general motors, intel, boeing, nike, coca cola, sony.
Merchandising business—wal-mart, toy “R” US, best buy, Amazon.com
Service business—Disney, air Canada, Marriott hotels, Merrill lynch, rogers.
--two primary ways of raising outside funds 筹集外部资金 for corporations are
1. borrowing money or replaying loans(debt 债务)借款或重放贷款
2. selling or repurchasing shares(equity 股权).出售或回购股票
-- the persons or the companies that the company owes money 欠钱 to are its creditors.
-- liabilities 负债金额.—“outsider claims” or economic obligations payable to outsiders.
-- bank indebtedness 银行债务
- note payable 票据-borrowed to purchase racks 机架 and display cabinets 显示柜.
- can include note payable, mortgages payables, lease obligations 租赁.
-- Common share
—the item used to describe the amount paid by investors for share of ownership in a company.
-- shareholds have no legal right to expect any payments until all o