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Chapter 1 1
Chapter 1
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What is accounting? Textbook definition: Information system in which the underlying economic conditions of organizations
What is accounting?
Textbook definition: Information system in which the
underlying economic conditions of organizations are
identified, recorded, and communicated to
information users (e.g., investors)
1) Identification
2) Recording (measurement)
3) Communication
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Accounting process 1) Identification Accounting event vs. Economic event 3
Accounting process
1) Identification
Accounting event vs. Economic event
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Apple Stock (AAPL) Dips After Steve Jobs' Death Oct. 6, 2011 By Susanna Kim Shares
Apple Stock (AAPL) Dips After Steve
Jobs' Death Oct. 6, 2011 By Susanna Kim
Shares of Apple Inc. (AAPL) fell at the close of trading on Thursday, the day
after former CEO Steve Jobs passed away.
Shares fell about 0.7 percent to $375.75 at the opening bell then bounced
back through the day. By 4 p.m. EST, the stock was $377.37, down 0.23
percent.
Apple shares fell 0.7 percent the day following Job's resignation on August
24. As Jobs' health began to fail from neuroendocrine cancer, he resigned as
CEO and handed the baton to his long-time lieutenant and chief operating
officer, Tim Cook. The 56-year old Jobs had led the company since 1996,
after co-founding the company in 1976 and his ouster in 1985.
http://abcnews.go.com/Business/steve-jobs-death-apple-stock-aapl-dips/story?id=14680622
Q) CEO death, is this an accounting event? A. Yes B. No 0% 0% Yes
Q) CEO death, is this an accounting event?
A. Yes
B.
No
0%
0%
Yes
No
Accounting process 1) Identification Accounting event vs. Economic event Q) Is this an accounting event?
Accounting process
1) Identification
Accounting event vs. Economic event
Q) Is this an accounting event?
Employees love for a company
Getting a new CEO
CEO getting sick
CEO death
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Accounting process 2) Recording (measurement) Is it measurable? Quantifiable? Accounting event should be
Accounting process
2) Recording (measurement)
Is it measurable? Quantifiable?
Accounting event should be quantifiable.
Asset: Resources that a company owns or controls that will
provide future economic benefits.
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Accounting process 3) Communication Annual Report (e.g., Financial Statements) Where do we find annual reports?
Accounting process
3) Communication
Annual Report (e.g., Financial Statements)
Where do we find annual reports?
Company website (investor relations)
Sedar.com for Canadian firms
Sec.gov for U.S. firms
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Annual Report Example 9
Annual Report Example
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Accounting process 3) Communication Annual Report (e.g., Financial Statements) Where do we find annual reports?
Accounting process
3) Communication
Annual Report (e.g., Financial Statements)
Where do we find annual reports?
Company website (investor relations)
Sedar.com for Canadian firms
Sec.gov for U.S. firms
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Auditor independence Auditors should conduct an independent examination of the financial statements to determine whether
Auditor independence
Auditors should conduct an independent examination of the
financial statements to determine whether they are presented
fairly in accordance with IFRS.
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Q) Where do audit fees (paid to accounting firms) come from? A. Government (from tax
Q) Where do audit fees (paid to
accounting firms) come from?
A. Government (from tax payers)
B. Client firm
0%
0%
A.
B.
Q) Who has the top priority over operating earnings generated by a corporation? A. Creditors
Q) Who has the top priority over operating earnings
generated by a corporation?
A. Creditors (e.g., bank interest payment)
B. Government (e.g., Tax payment)
C. Shareholders (dividend)
0%
0%
0%
A.
B.
C.
Income Income Statement Statement 15
Income Income Statement Statement
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Balance Sheet
Balance Sheet
Statement of Changes in Equity Note that Statement of Retained Earnings are included in this
Statement of Changes in Equity
Note that Statement of Retained Earnings
are included in this statement.
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Statement of Cash flows 18
Statement of Cash flows
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[2013 final] What financial statement would reveal how much cash was generated from operating activities
[2013 final] What financial statement would reveal how much cash
was generated from operating activities during a period of time?
A. Income statement
B. Balance sheet
C. Statement of owner s equity
D. Cash flow statement
0%
0%
0%
0%
A.
B.
C.
D.
Which company do you like better? Company A) Operating cash flow: Financing cash flow: no
Which company do you like better?
Company A)
Operating cash flow:
Financing cash flow: no change
Investing cash flow
Company B)
Operating cash flow:
Financing cash flow: no change
Investing cash flow:
A. Company A
B. Company B
0%
0%
Company A
Company B
Q) Is corporation a legal person? A. Yes B. No 0% 0% Yes No
Q) Is corporation a legal person?
A. Yes
B.
No
0%
0%
Yes
No
Forms of organization Sole Proprietorship (unlimited liability) Partnership (unlimited liability, in general)
Forms of organization
Sole Proprietorship (unlimited liability)
Partnership (unlimited liability, in general)
Corporation
Advantage: limited liability (Owners are not liable
for the debts of the firm.)
Disadvantage: double taxation
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Limited liability (page 557) Shareholders cannot be made to pay for the company s liabilities
Limited liability (page 557)
Shareholders cannot be made to pay for the
company s liabilities out of their personal assets.
They may lose the amount that they have invested in
the shares of the company, but they will not lose
more than their investment.
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[2013 final] What is the form of business organization in which all of the owners
[2013 final] What is the form of business organization in
which all of the owners have limited liability?
A. Sole Proprietorship
B. Partnership
C. Corporation
0%
0%
0%
A.
B.
C.
Q) In general, can shareholders withdraw their investments from Corporation as they wish? A. Yes
Q) In general, can shareholders withdraw their investments
from Corporation as they wish?
A. Yes
B.
No
0%
0%
A.
B.
Q) What do shareholders get in exchange for contributed capital? A. Interest income B. Dividend
Q) What do shareholders get in exchange for contributed
capital?
A. Interest income
B. Dividend
0%
0%
A.
B.