Textbook Notes (270,000)
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Chapter 1

MGAB01H3 Chapter Notes - Chapter 1: Financial Statement, Share Capital, Retained Earnings


Department
Financial Accounting
Course Code
MGAB01H3
Professor
G.Quan Fun
Chapter
1

Page:
of 2
Monday, September 14, 2009
NN: Chapter 1 [MGTB05]
Accounting Matters!
Accounting: The process of identifying, recording and communicating the economic events of a business
Users and Uses of Accounting
I. Internal Users: members of businesses that plan, organized and run the company
a) These members work for the company (ex: financial directors, marketing mangers)
b) These members need access to detailed accounting information on timely basis
c) In reports included: projections of earnings from new sales campaigns, forecasts of cash
needs for the next year, analyses of sales costs, budgeted financial statements
II. External Users: member who are outside the business
a) Ex: investors & creditors are the main external users of accounting information
Forms of Business Organizations
I. Proprietorships
a) Advantage: simple to set up, all control over business, small capital need to start
b) Disadvantage: owner has unlimited liability, no distinction between owner & business
c) Ex: hair salons, retail stores, farms, plumbers
II. Partnerships
a) Advantage: more economic resources available, combination of unique skills
b) Disadvantage: unlimited liability for all debts of the partnership
c) Ex: law firms, doctors, engineers, accountants
III. Corporation
a) Advantage: opportunity for larger economic resources, shareholders have limited liability,
more favorable tax treatment
b) Disadvantage: increased government regulations, corporations are taxed as separate
entities
(1) Public Corporations: distribute FSs to shareholders, creditors & public upon request
(2) Private Corporations: do not issue publicly traded shares
Business Activities
Financing Activities: Obtaining & repaying funds
Ways to raise money:
1. Borrow money
Liabilities: The debts & obligations of a business, they are claims of creditors on the assets of a
business
I. Bank Indebtedness: Funds taken from an operating line of credit with a bank
II. ST Notes Payable: Debt from money borrowed from a bank
III. LT Notes Payable:
1. Notes payable
2. Mortgages payable
3. Lease obligations
IV.Accounts Payable:
V. Interest Payable: outstanding amounts owned to lenders
VI. Dividends Payable, Salaries payable, provincial sales taxes, property taxes payable
2. Issuing (selling) shares in exchange for cash
Share Capital: Shares representing the ownership interest in a corporation, if one class ! common shares
I. Creditor: Member of which the company owns money to
i) Law requires that creditor claim be paid before shareholders claim
II. Dividends: The distribution of retained earnings from a corporation to its shareholders
1
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