BU127 Chapter Notes - Chapter 1: International Financial Reporting Standards, Investment, Income Statement
ProfessorMichael L.D' Silva
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If borrowed money from a local bank and other lenders, or creditors, and
uses these funds to expand the business. Creditors lend money to a
company for a specic length of time. Gain by charging interest on the
money they lend.
Individuals who buy small percentage of large corporations are called
investors. Expect to receive a portion of what the company earns in the
form of cash payments called dividends, and they hope to eventually sell
their share of the company at a higher price than they paid.
The exchanges of money between company and its lenders and owners are
called nancing activities.
Company’s purchases or sales of property, such as equipment used in
production, are called investing activities.
Accounting is a system that collects and processes (analyzes, measures,
and records) nancial information about an organization and reports that
information to decision makers.
Developing accounting information for internal decision makers is called
managerial or management accounting.
Accounting for external decisions makers are called nancial accounting.
The Statement of Financial Position (Balance Sheet) reports
the nancial position (assets, liabilities, and shareholders’ equity) of an
accounting entity at a point in time.
Basic Accounting Equation
Assets = Liabilities + Shareholder’s Equity
Assets are economic resources controlled by the entity as a result of past
Liabilities are the entity’s obligations that result from past business events.
They primarily arise from the purchase of goods or services on credit and
through cash borrowings to nance the business
Shareholder’s Equity indicates the amount of nancing provided by
owners of the business, as well as earnings over time. Contributed capital:
the investment of cash and other assets in the business by the owners
Retained earnings is the amount of earnings reinvested in the business
(and thus not distributed to shareholders in the form of dividends)
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