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Chapter 1

COMMERCE 1AA3 Chapter 1: Chapter 1 notes.docx

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Chapter 1: The Financial Statements 09/11/2014
The core of financial accounting revolves around the basic financial statements:
Income statement sometimes known as the statement of profit or loss
Statement of retained earnings  sometimes included in the statement of changes in owners’ equity
Balance sheet  also known as the statement of financial position
Cash flow statement  also known as the statement of cash flows
Statement of other comprehensive income
Financial statements – reports that companies use to convey the financial results of their business activities
to various user groups, which can include managers, investors, creditors, and regulatory agencies.
Information is used to make decision  e.g. whether to invest in or loan money to the company
- Net income if the excess of revenues over expenses
Accounting – information system that measures and records business activities, processes data into
reports, and reports results to decision makers  language of business
Bookkeeping – mechanical part of accounting, just as arithmetic is a mechanical part of math
Who Uses Accounting Information:
Investors and creditors
Government and regulatory bodies
Not-for-profit organizations
Two Kinds of Accounting:
Financial accounting  internal and external users rely on this information
Managerial accounting  used by internals users only  e.g. budgets, forecasts, and projections
Organizing a Business:
Proprietorship  unincorporated business with a single owner, the proprietor
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