Creditors- lenders, borrow funds from
investors- individuals who buy small percentages of large corporations.
dividends- portion of what company earns as cash payments
also, buy shares to sell for a higher price
creditors gain from their lending by charging interest
exchanging money with lenders and owners is a financing activity
buying property and equipment is a investing activity
The business Operations
provider of resources- suppliers
sells products and services to customers
The accounting system
members within the corporation -internal decision makers
parties outside the firm are external decision makers. eg. investors, loan officers
managerial/management account- develop accounting information for internal decision makers.
financial accounting- producing account information for external users.
the statement of financial position
statement of financial position- reports the financial position of an accounting entity at a point in time
organization that financial information and reports are collected from is the accounting entity
often called the business or corporation.
shows financial position and a specific point in time
basic accounting equation:
Assets = Liabilities + shareholders' equity
trades payable- purchase of goods from supplier on credit without formal written contract (note) provisions- estimated amounts payable in the future, timing and amount depends on future events
the statement of comprehensive income
reports the change in share holder's equity fro business activities other than investments by
shareholders or distribution to shareholders
accounting period- the time period covered by the financial statements
Cost of sales- includes ingredients, wages paid to factory workers, and portion of the cost of buildings
and equipment, and tools.(depreciation)
statement of changes in EQuity
reports all changes in equity during an accounting period.
retained earnings- profits that have been earned since the creation of the company but not distributed
yet to shareholders as dividends.
beginning retained earnings + profit-dividends = ending retained earnings
retained earnings is a important source of financing, half of nestle's financing.
statement of cash flows
divided into cash inflows(receipts) and outflows ( payments) into three categories
+/- cash flows from operating activities
+/- cash flows from investing activities
+/- cash flows from financing acitivies
change in cash
statement of cash flow useful for predicting future cash flows
indicates company's ability to generate cash from sales to meet current cash needs. MARKETING managers and credit managers use customers financials t o decide whether to extend
purchasing managers analyze financial statement
notes(footnotes)-provides supplemental information about the financial condition of a company,
without which the financial statements cannot be fully understood.
3 types of notes
1) provides description of accounting rules applied in the company's statements
2) presents additional details about a line on financial statement e.g nestle's inventory note indicates
costs of raw material and supplies that are in process of beign complete are ready for sale to customers.
3) additional financial disclosure- about items not listed on the statements themselves
measures the multiple of current year's earnings that investo