Management and Organizational Studies 1023A/B Study Guide - Accounts Payable, Limited Liability, Financial Statement
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The purpose and use of financial statements1/15/2013 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 External 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 ▪
Marketing ▪ Employee compensation ▪ Capital budgeting ▪ Resource allocation
Investors and creditors are the main external users of accounting information
-- Investors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税务机关
▪ 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.
-- 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 of its creditors are paid.
--companies pay their shareholds a return on investment , called dividends 股利.
-- Obtaining the resources or assets needed to operate the business for the long term
-- asset 资产
-- the economic resources of a business that are expected to produce a benefit in the future
--can also be short lived
-- together, are referred to as property 物业, plant 厂房, and equipment or “ property and
-- cash can also be an important assert
-- the main day-to- day activities of the business
-- transactions—creates revenues 收入 and expenses 费用.
-- related accounts such as receivables, inventory, and payables.
--revenues are increases in economic resources, normally an increase in an asset but sometimes a
decrease in a liability.
-- sales revenue, service revenue, and interest revenue are common to many business.
* account receivable 应收账款(an asset)—right to receive money in the future.
* income tax receivable(future income tax asset) is due from government
* expense—the cost of assets that are consumed or services that are used in the process of
types of expense
--cost of goods sold, operating expenses( such as salaries, advertising, utilities 公用事业,
professional fees, rent, and other cost associated with running the business.), depreciation
expense, interest expense, income taxes
* inventory 库存 or merchandise inventory 商品库存
—items are held for future sale to customers.
-- once the gods are sold, the cost of merchandise inventory is called cost of goods sold.销售成本
* accounts payable 应付账款--the obligation pay for goods.
-- bank indebtedness, interest payable, dividends payable, salaries payable, provincial
sales taxes/ property taxes payable, goods and services taxes payable, income tax
* net earnings—revenues are more than expense determine whether earn a profit
* net loss—expenses exceed revenues.
Communicating with users
Financial Statements -- the business documents that companies use to report the results of their
activities to various user groups.
-- The system of accounting produces the following statements:
1. income statement( statement of earning)
-- a statement of earnings reports revenues and expenses to show how successfully a company
performed during a period of time.
C. Earnings before income taxes
d. income tax expenses
e. net earning(loss)
1. issue of shares and distribution of dividends do not affect net earning. EX: issuing
new shares, would not be reported in the statement of earning, it will be in balance sheet.
2. cents are not included in the dollar figures recorded in financial statements, nut it used in a
company’s internal accounting records.
2. statement of retained earnings
-- indicates the portion of a company’s earnings that was distributed to you and the other
shareholders of a company in the form of dividends, and how much was retained in the
business to allow for future growth.(amount and causes)
-- retained earnings—the cumulative 累计的 earnings that have been retained in the corporation.