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BU227 (27)
Chapter 1

Chapter 1 What is FA

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Wilfrid Laurier University
James Moore

BU227 Lecture Ch 1 Financial StatementsBusiness Decisions 2013 Understanding the Business The PlayersOwnermanager founder of the businessCreditors lenders lend money for a specific period of time and gain by charging interest Investors owners shareholdersstakeholders buyof large corporations hoping to receive a portion of companys dividends and to eventually sell their share for a higher price than they paid The Business OperationsTo understand any companys financial statements you must understand its operationsFinancing activities exchanging money with lenders and ownersInvesting activities buying or selling property The Accounting SystemAccounting a system that collects and processes analyzes measures records financial information about an organization and reports that information to decision makers Managerial accounting detailed planscontinuous performance reports Internal decision makers managers typically must plan daily operations of the organization Financial accounting periodic quarterlyannual financial statementsrelated disclosuresExternal decision makers parties outside firm creditors investors suppliers customersAccounting Records An organized format used to accumulate the dollar effects of transactionsWhat do Accountants Do CARS 1 Collection of data from day to day operations2 Analysis of transactions 3 Recording transactions 4 Summarizing into financial statementsAlso Financial statement analysisaudit taxation budgeting cash flow management etcBasic Financial Statementsprepared at any point in time can apply to any time span quarterly annualIntended mainly to inform investors creditors and other external decision makers Accounting entity the organization for which financial data are to be collectedreported Accounting period time period covered by the financial statements Include name of entity title of the statement specific date time period and unit of measure Focus on o What categories of items elements are reported on each of the four statementso What type of information does a statement convey and where can you find it o What time period monthly quarterly annual is covered by the financial statements o How are the elements within a statement related usually described by an equationo Why is each element important to managers owners or creditors decisions1 Statement of Financial Position Balance SheetReports the financial position of an accounting entity at a particular point in time Financial position owned economic resources and sources of financing for the resourcesit shows creditors whether the company has sufficient sources of cash to pay its debt obligations Shareholders equity net worth is important because creditors are paid before shareholdersshareholders provide resources with no promise of any future repayment ALOEAccounting EquationAssetsLiabilitiesShareholders Equity Assets resources owned highest liquidity to lowesteconomic resources controlled by the entity as a result of past business events from which future economic benefits may be obtained1
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