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BUEC 232 Chapter Notes - Chapter 1: Financial Accounting, Financial Statement, Making Money

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peachhamster445
17 Feb 2015
School
Simon Fraser University
Department
Business Economics
Course
BUEC 232
Professor
Weiguo Zhang

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BUEC 232 Full Course Notes
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BUEC 232 Full Course Notes
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Document Summary

Accounting is a system for producing information about an entity and communicating that information to people who want the information for making decisions. The cost/benefit trade-off is the concept of comparing the benefits of an action with the costs of the action, and taking the action only if the benefits are greater than the costs. Information should be collected only if the benefit is greater than the cost. It is usually too costly to obtain all possible information and so all information is usually not collected. Explain the difference between financial and managerial accounting. Give an example of a decision that reflects each of these two fields of accounting. Financial accounting refers to the field of accounting that provides information to people who are external to an entity. These external users of accounting information include investors, lenders, taxation authorities (canada revenue.

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Related Questions

Which of the following best describes the kinds of decisions that result from using cost-benefit analysis?
A. An outcome with benefits that are greater than the costs.
B. An outcome that is rational if only monetary costs and benefits are included.
C. A maximum amount of profit for both producers and consumers.
D. A high sale price for producers and low buying price for consumers.

1. Who is making bad decisions?

2. Does the decision maker have enough information to make a good decision?

3. The incentive to do so?

The three step process is used to evaluate and analyze the decision.

The first step is used to identify the decision and the process taken up to reach on a decision. Any decision based upon only gut feeling or marketing myopia without any rational approach will lead to the bad decision.

The second step deals with the necessary information available to the decision makers. It requires an information system that consists of quantitative data as well as qualitative information. It helps in taking a rational and optimum decision of:

1. What to produce

2. How to produce

3. How much to produce

4. Where to produce

5. The most suitable market for sales and pricing strategy

The third step deals with the incentive such as stock option plans, bonus and profit sharing agreement. It prevents any agency conflict also. Therefore, the three step process prevents any moral hazard and encourage managers to take an informed decision of for the benefits of all the parties.

Question:

Is it always possible to have the information to make the best decisions? Why? (In 100-150 words)

Discuss and explain the difference between the two.

The principle upon which Adam Smith first claimed that free trade benefits all countries. It holds that a country benefits from trade when it produces a particular good at a lower cost (in terms of labor input) than it costs to produce the good in any other country. By specializing the in the production and export of this good and importing goods whose production costs are higher than in other countries, the country can consume more of both goods. In trade theories, this principle was later replaced by the principle of comparative advantages.

Comparative Advantage is first fully stated by David Ricardo in the early nineteenth century, this concept holds that a country has a comparative advantage in a good if it can produce that good more cheaply than it can produce other goods. By specializing in the production of goods in which it holds a comparative advantage and importing the other goods, the country can consume more of all goods. In contrast to Adam Smith, therefore, this principle states that a country need not have an absolute advantage in any good to benefit from trade. The principle provides a powerful justification for liberal international trade by asserting that all countries benefit from such trade.