Textbook Notes (368,122)
Canada (161,660)
MGTA02H3 (363)
Chapter 4

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Management (MGT)
Chris Bovaird

Chapter 4: Understanding Accounting Issues Accounting • A comprehensive system for collecting, analyzing, and communicating financial information • Measure business performance (e.g. sales, expenses, profits or losses, taxes) • Translate this info so managers (and others) can make decisions Accounting information system • An organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports • Business managers use it to set goals, develop plans, set budgets, and evaluate future prospects. • Managers need to know how well a business is performing, and whether it is financially sound • To measure, analyze and appraise all businesses, we need a common unit of measurement: the dollar Financial accounting • Tells external users about financial condition of film. • Tends to look at business as a whole • Audit o An accountant’s examination of a company’s financial records to determine if it used proper procedures to prepare its financial reports o Is collected on an annual basis o External users (shareholders, lenders) wants to know if “the books” have been done correctly • Tax o Accountants help businesses plan and prepare annual tax returns – ensure taxes payments comply with the law o Collected on an annual basis o External users (tax authorities) want to know how much tax is owed • Fiscal year o Owners choose start/end of financial year o Businesses prepare their financial info at end of every year – need not be Dec. 31 Managerial accounting • Tells internal users about performance and problems, for planning, decision making and control purposes. • Tends to look at individual products, plants or divisions Financial Statements • Any of several types of broad reports regarding a company’s financial status; most often used in reference to balance sheets, income statements, and/or statements of cash flows • Key reports all companies must prepare • Three broad categories - balance sheet, income statement, statements of cash flows Balance sheet o A type of financial statement that summarizes a firm’s financial position on particular date in terms of its assets, liabilities, and owners’ equity o Shows resources owned and available to the business o One way to determine “wealth” or “financial standing” is to consider  What possessions do I own  What is the value of my property  How much “stuff” have I got o What balance shows  Shows the quantity (value) of your material possessions  Show the business is big or small  Show the business is growing or shrinking  Has business borrowed lots (lots of liabilities, is exciting – but risky)  Have owners used their own resources (lots of equity, is safe – but limiting)  When assets likely to become cash  When liabilities must be paid o Terms  Inventory 庫庫  Overdraft 庫庫  Bank loan 庫庫庫庫  Mortgage 庫庫 o Assets  Possessions available to a business  Things that we can be sold or given away  Store of value  Potential source of cash  What sort of assets does a business have × Cash – bank accounts, petty cash × Accounts receivable – money owed to you × Raw materials – bread, cheese, tomatoes × Inventory – products ready to be sold × Real estate – office buildings, factories × Machinery $ equipment – vans, computers  Three types × Current assets - Cash and other assets that can be converted into cash within a year (hope to cash in < 1 year) - Liquidity: the ease and speed with which an asset can be converted to cash; cash is said to be perfectly liquid - Accounts receivable: amounts due to the firm from customers who have purchased goods or services on credit; a form of current asset - Merchandise inventory: - Prepaid expenses: × Fixed assets - Assets that have long-term use or value to the firm such as land, buildings, and machinery - Depreciation: × Intangible assets - Non-physical assets such as patents, trademarks, copyrights, and franchise fe
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