Chapter 1 - Handout.pdf - CHAPTER 1 – Financial Accounting...

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Chapter 1 Handout1CHAPTER 1Financial Accounting and Accounting StandardsFinancial Accountingthe(1)identification, measurement, and communicationoffinancialinformationabout (2)economic entitiesto (3)interested parties.End product =financial statements of the entity used by both internal and external decision-makers.Entities:corporations (publicly-traded or closely-held), partnerships, sole proprietorshipsExternal users:Stockholders (owners separate from management), creditors, governmental andregulatory agencies, customers, employees, suppliers, labor unions, etc.Internal users:Owners (sole proprietors, partners), management (CEO, CFO, etc.)Financial statementsstandard reporting form/format used to communicate financial informationBasic Financial Statements:balance sheetincome statementstatement of comprehensive incomestatement of cash flowsstatement ofowners’ equityOther financial reportsPresident/CEO letter, supplementary schedules in the corporate annualreport, prospectuses, and reports filed with government agencies, news releases, managementforecasts, and social or environmental impact statements.Objective of (General-Purpose) Financial Accounting and ReportingThe objective of general-purpose financial reporting is to provide financial information about thereporting entity that is useful to present and potential equity investors, lenders, and other creditors inmaking decisions about providing resources to the entity.(SFAC No. 8, “Objectives of General Purpose Financial Reporting”, issued 2010, supersedes SFAC No. 1)Short:To providefinancial informationabout theentitythat isusefultoexternaldecision-makers.Primary external users (decision-makers) are investors and creditorspresent and potentialequity investors, lenders, or other creditors making decisions about providing resources(investing or lending) to the entity.Current investors and creditors have direct financial interest.Objective assumes a single set of information.Objective also assumes that users have areasonable understanding of business and are willing tostudy the information with reasonable diligence.Objective identifies the entity as separate and distinct from the owner(s) =entity perspective.
Chapter 1 Handout2In economics, unlimited wants; limited resources.Financial statements provide information thatleads to efficient allocation of capital.Decision-usefulnessIs the financial information useful in making investment decisions?Users expect F/S to present fairly, clearly, and completely the entity’s financial operations.Generally Accepted Accounting Principles (GAAP)Accounting requires a common set of standards and procedures to ensure reasonably comparablefinancial statementsgenerally accepted accounting principles (GAAP)GAAPwhat to measure, how to measure, when to recognize.

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Term
Summer
Professor
Gaynor
Tags
Accounting, Financial Accounting, International Financial Reporting Standards, Financial Accounting Standards Board, End product

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