BUS 251 Chapter Notes - Chapter 1: Financial Accounting, Stock Exchange, Financial Statement

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Dene nancial accounting and understand its relationship to
economic decision-making.
Financial accounting is the process by which information on the
transactions of an organization are captured, analyzed and used to
report to decision makers outside of the organization’s management
team. The primary purpose of nancial accounting is to aid these
decision makers in their economic decision-making.
External users receive a less detailed nancial accounting information
where as, internal users (the management team) receive a more
detailed nancial accounting information that covers every day
nances. Economic information is necessary for an organization to
continue to operate e$ciently and e%ectively. Financial accounting
provides vital information that enables organizations to make
decisions. Financial statements are management’s reports to the
company’s owners that are produced at the end of each accounting
period, such as every quarter, every year. They are included in the
company’s annual report together with management’s discussion and
analysis (MD&A).
Identify the main users of nancial accounting information and
explain how they use this information.
Internal users
Management
External users
Employees, Unions
Auditors, federal and provincial government departments,
legislators
Potential investors, Customers
Stock analysts, Brokers, Financial advisors. Business reporters
Stock exchange regulators
Shareholders, Board of directors, investors, owners
(focus in Bus 251)
Creditors, Suppliers
Shareholders own a company; a single shareholder means the
company is private and thousands of shareholders means that the
company is public. If there are multiple shareholders, they elect a
board of directors to represent their interests. The board of directors
overlooks the management team. The board of directors need nancial
information to assess how well management has been running the
company. They need accounting information to assess whether they
should or shouldn’t buy or sell more shares.
Creditors need accounting information to assess the company’s
ability to service the loan. This is done by looking at the cash 2ow of
the company. Creditors are interested in he company’s assets such as
the land they own, inventory, equipment, buildings or land, because
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