Lecture 1 0123 - ORIE 350 Financial and Managerial...

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    ORIE 350 Financial and Managerial  Accounting Lecture #1
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    First, a definition Accounting is an information system that measures, processes, and communicates financial information about an economic entity (like a business). Not all aspects of a business are described by the accounting system. For example, the quality of the company’s products and the workplace environment are not described by the accounting system. But a large portion of what goes on in a business is included in the accounting information.
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    What else should we know? Accounting is a link between business activities and decision makers. This allows a decision maker to run a large business, as all aspects of the business do not have to be observed first-hand.
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    More introduction Management personnel SHOULD have a good understanding of accounting to set financial goals and make financial decisions. The CEO’s [Chief Executive Officers] of some recent spectacular bankruptcies claimed ignorance of basic accounting.
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    Managerial Accounting Provides information to internal decision-makers. You want this information to remain private, as it would be very valuable to your competitors. e.g., it costs Xerox $320 in direct labor expense to manufacture one small office photocopier. Since internal costs are tracked, managerial accounting is also known as cost accounting .
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     Financial   Accounting Generate reports that are used extensively both inside (always) and outside (sometimes) of the firm. While the business would prefer to keep this data secret, the US Government requires public companies to disclose their financial accounting data. Public company = stock is traded on a stock exchange. Stock = legal instrument representing a share of ownership in a corporation
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    A business is an economic unit that aims to sell goods and/or services.
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    Forms of Business Organizations A. There are three basic types of business organizations in the USA: a. Sole Proprietorship (single owner) b. Partnership (several owners) c. Corporation (owners are stockholders) We will focus on the last type. A corporation is a separate legal entity.
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    Sole Proprietorship The key thing with a sole proprietorship is that the resources of the business and the business owner are co-mingled. This makes the business very simple and easy to set up, but it also makes it difficult for the business to grow very large.
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  Partnership Many legal and medical firms use the partnership form of business. This makes it easy to allocate profits to the
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Lecture 1 0123 - ORIE 350 Financial and Managerial...

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