Textbook Notes (362,796)
Canada (158,054)
MGAB01H3 (126)
Liang Chen (50)
Chapter 1

Chapter 1 Textbook Notes

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University of Toronto Scarborough
Financial Accounting
Liang Chen

Chapter 1 01 Chen, Liang MGTB05, Lec. 03 Chapter 1: Purpose and Use of Financial Statements September 15 , 2009 Accounting Matters 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. Users and Uses of Accounting Internal Users - Internal users are people who work for the company (e.g. finance directors, marketing managers, human resources personnel, production supervisor, an company officers) - They use accounting information in order to plan, organize and run companies - Internal users asks questions: o Finance Is there enough cash to pay the bills? o Marketing What price should we sell iPods for to maximize profits? o Human Resources How many employees can we afford to hire this year? o Production Which product line is most profitable? - Internal users use accounting information to make reports such as: o Financial comparisons of operating alternatives o Projections of earnings from new sales campaigns o Forecasts of cash needs for the next year o Analyses of sales costs o Budgeted financial statements External Users - Creditors and investors are the main external users of accounting information - Creditors such as suppliers and bankers use accounting information to evaluate the risks of granting credit or lending money o Will the company be able to pay its debts as they come due? - Investors use accounting information to make decisions to buy, hold, or sell their ownership interest o Is the company earning enough to give me a return on my investment - Other external users of accounting: o Labour unions to know whether the company can pay increased wages and benefits o Customers interested in whether a company will support its product line and honour product warranties o Taxing authorities want to know whether the company respects the tax laws (e.g. Canada Revenue Agency) o Regulatory agencies want to know whether the company is operating within prescribed rules (e.g. provincial securities commissions) www.notesolution.com
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