ch1 financial Statement.pptVIP

Chapter 1 THE FINANCIAL STATEMENTS Accounting concepts and principles Accounting equation Financial statements Accounting: The Language of Business What is accounting? The information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers. A continual process of: --Capturing financial data --Organizing it --Producing financial statements Accounting: The Language of Business Financial Statements --Income statement (the statement of operations) --Statement of retained earnings --Balance sheet (the statement of financial position) --Statement of cash flows Accounting: The Language of Business Who Uses Accounting Information? Internal Users managers use it to plan, organize and run a business. External Users Investors (Shareholders and bondholders) Creditors (banks, suppliers, etc.) Others (minor external users) Taxing authorities : to determine taxable income Regulatory agencies : to monitor companies Labor unions : to make wage increase demand Economic planners : to gather information of individual companies Accounting: The Language of Business Financial Accounting vs. Management Accounting FA: --Focuses on external users, mainly investors and creditors in the capital market. --Relatively specified reporting form MA: Geared toward internal users (managers). Accounting’s Foundation GAAP Generally Accepted Accounting Principles known as GAAP are the commonly understood and accepted conventions for gathering, organizing, and reporting the financial information of an organization. Accounting’s Foundation Accounting Concepts --The Entity Concept It draws a sharp boundary around each entity. Accounting entity, Legal entity, The owners --The Going-Concern Concept: It holds that the entity will remain in operation for the foreseeable future. Going-concern: history cost Going