MOS 1023 Chapter 1 – Purpose and Use of Financial Statements.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

Chapter 1 – Purpose and Use of Financial Statements: Accounting Matters: Accounting  the information system that identifies and records the economic events of an organization and then communicates them to a wide variety of interested users  “the language of business”  quantifies costs and explains why a product or service costs what it does Users and Uses of Accounting: Internal Users  Plan, run and organize companies  Include: finance directors, marketing managers, HR personnel, production supervisors and company officers  Commonly asked questions by internal users: o Is there enough money to pay bills o What price should I sell product at? o How many employees can we hire? External Users  Investors  use info to make decisions to buy, hold or sell their ownership interests  Creditors  use info to evaluate the risks of granting credits to the company o Investors and creditors are main users of accounting info  Commonly asked questions: o Is ther company earning enough to give returns on investments? o Will the company be able to pay its debt as they come due? o Can the company afford the pay raise we are asking for? Forms of Business Organizations: Proprietorship:  A business owned by one person  Simple to set up and gives owner the control over the business  Small amounts of capital needed to start-up  Owner receives any profits, suffers losses and is personally liable for all debts of business Partnerships:  More than one owner  Formed normally due to one person’s lack of capital to start- up  Disadvantages: o Partners have unlimited liability to both partners debts  Limited liability Corporations:  Investor in corporations = receives shares from company  Many proprietorships and partnerships turn to corporations  Not accountable for all liabilities or debts  Pay income taxes on separate legal entities on any corporate profits  Public Corporations  commonly distribute their finical statements to shareholder, creditors other interested parties and general public upon request  Private Corporations  do not issue publically traded shares Business Activities: Financing Activities:  ways to raise funds o borrowing money  bank indebtedness  Long-term debt  Notes payable, mortgage payable, lease obligations o issuing shares  common shares o cash  repaying debt/repurchasing shares from investors  Creditor  loaning money to a company  Can add interest to the amount owed if payment date is stt met  Must be paid 1 before shareholder claims  Liabilities  amounts owed to creditors in the form of debt and other obligations  Divid
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