Management and Organizational Studies 1023A/B Chapter Notes - Chapter 1: Accounts Payable, Promissory Note, Financial Statement

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Chapter 1- Purpose and Use of Financial Statements
accounting is the information system that identifies and records the economic events of an
organization and communicates them
economic systems depend on highly transparent, reliable and accurate financial reporting
“the language of business”
Users and Uses of Accounting
internal users of accounting information plan, organize and run companies
external users are investors that use accounting information to make decisions to buy, hold or
sell their ownership
creditors evaluate the risks of granting credit to a company
in order for financial information to have value to its users, it must be prepared by individuals
with high standards of ethical behaviour
ethics in accounting is of the utmost importance
Forms of Business Organization
owned by one person
simple to set up and gives you control, usually operated by the owner
personally liable for all debts of the business
no legal distinction between business and owner
a partnership is similar to a proprietorship except there is more than one owner
often formed because one person does not have enough economic resources to initiate the
business, or because partners bring unique skills to the partnership
unlimited liability for all debts of the partnership
exception: limited liability
as an investor in a corporation, you receive shares to indicate your ownership claim
can become owners by investing relatively small amounts of money
makes it easier for corporations to raise funds
shares are easy to sell
thousands of shareholders, shares are traded on organized stock exchanges
many business starts as proprietorships or partnerships and eventually incorporate
limited liability
corporations pay income taxes as separate legal entities
revenue produced by corporations is far greater
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