Beruflich Dokumente
Kultur Dokumente
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Users and Uses of Financial Information Internal users External users Ethics in financial reporting
Business Activities
Income statement Retained earnings statement Balance sheet Statement of cash flows Interrelationships of statements Other elements of an annual report
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Partnership
Corporation
Simple to establish Shared control Broader skills and resources Tax advantages
Tax advantages
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Finance
Management Customers Creditors Marketing Regulatory Agencies
Investors
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User
Human Resources
Marketing
Management
Finance
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User
Investors
Investors
Creditors
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Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others.
Congress passed Sarbanes-Oxley Act of 2002. Effective financial reporting depends on sound ethical behavior.
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Business Activities
All businesses are involved in three types of activity
The accounting information system keeps track of the results of each of these business activities.
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Business Activities
Financing Activities
Two primary sources of outside funds are:
1. Borrowing money
Amounts owed are called liabilities. Party to whom amounts are owed are creditors. Notes payable and bonds payable are different type of liabilities.
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Business Activities
Investing Activities
Purchase of resources a company needs operate.
to
Computers, delivery trucks, furniture, buildings, etc. Resources owned by a business are called assets.
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Business Activities
Operating Activities
Once a business has the assets it needs, it can begin its operations.
Revenues - Amounts earned from the sale of products (sales revenue, service revenue, and interest revenue). Inventory - Goods available for sale to customers. Accounts receivable - Right to receive money from a customer,in the future, as the result of a sale.
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Business Activities
Operating Activities
Expenses - cost of assets consumed or services used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense).
Liabilities arising from expenses include accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable.
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Balance Sheet
Income Statement
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Reports revenues and expenses for a specific period of time. Net income revenues exceed expenses.
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Statement shows amounts and causes of changes in retained earnings during the period. Time period is the same as that covered by the income statement. Users can evaluate dividend payment practices.
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Reports assets and claims to assets at a specific point in time. Assets = Liabilities + Stockholders Equity. Lists assets first, followed by liabilities and stockholders equity.
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SO 5 Explain the meaning of assets, liabilities, and stockholders equity, and state the basic accounting equation.
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SO 5 Explain the meaning of assets, liabilities, and stockholders equity, and state the basic accounting equation.
Answers:
Where did cash come from during the period? How was cash used during the period? What was the change in the cash balance during the period?
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SO 5 Explain the meaning of assets, liabilities, and stockholders equity, and state the basic accounting equation.
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SO 5 Explain the meaning of assets, liabilities, and stockholders equity, and state the basic accounting equation.
Financial statements.
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SO 6 Describe the components that supplement the financial statements in an annual report.
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SO 6 Describe the components that supplement the financial statements in an annual report.
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SO 6 Describe the components that supplement the financial statements in an annual report.
Notes are essential to understanding a companys operating performance and financial position.
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SO 6 Describe the components that supplement the financial statements in an annual report.
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SO 6
Key Points
International standards referred to as International Financial Reporting Standards (IFRS), are developed by the International Accounting Standards Board (IASB).
The United States and the international standard-setting environment are primarily driven by meeting the needs of investors and creditors. The internal control standards applicable to Sarbanes-Oxley (SOX) apply only to large public companies listed on U.S. exchanges.
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Key Points
IFRS tends to be simpler in its accounting and disclosure requirements; some people say more principles-based. GAAP is more detailed; some people say more rules-based.
U.S. regulators have recently eliminated the need for foreign companies that trade shares in U.S. markets to reconcile their accounting with GAAP. The three most common forms of business organization, proprietorships, partnerships, and corporations, are also found in countries that use IFRS. The conceptual framework that underlies IFRS is very similar to that used to develop GAAP.
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