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1.30 - Today's Topic Financial Accounting Information for...

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Today’s Topic PLEASE TURN OFF CELL PHONES Financial Accounting Information for investor decision-making in accountability situations This class will: Describe the communication (= financial statements)  provided to decision-makers (= investors)                    by  financial accounting
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Fig 55. Overview of Financial Accounting Information and Decision Making CONTEXT PROCESS Investor, Financial Analyst DATA INFORMATION DECISION SYSTEM T R A N S A C T I O N S Accounting System Financial Statements Income, Value Investment Decision Invest or not GAAP Market Price
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Fig. 56 FASB (GAAP) Requirements Financial Statements: Balance Sheet Income Statement Statement of Cash Flows Statement of Changes in Stockholders’ Equity Each contains: Elements: Broad categories of accounts Accounts: Smallest classification of activity
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Fig. 57 Basic Elements of Financial Statements Balance Sheet assets - Liabilities equity Income Statement Revenue - Expense Net Income Statement of Cash Flows Net Cash Flows from: Operating Activities Investing Activities Financing Activities + Beginning Cash Balance Ending Cash Balance Statement of Changes in Equity Beginning Equity Balance + Net Income - Dividends Ending Equity Balance
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Fig. 58 Balance Sheet Elements Assets are resources business uses or will use to produce revenue Cash Amount owed to the business by others Property owned by the business Liabilities are claims by creditors on assets Amounts owed by the business to others Equity is claims by investors (owners) on assets Amounts contributed by owners to the business Amounts earned by business but not yet given to owners
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Fig. 59 Accounting Equation: Balance Sheet Claims on the assets are from two sources:   1. Creditors (Liabilities)  2. Investors or owners (Equity).
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Fig. 60 Accounting Equation: Balance Sheet Assets = Liab. + Equity 500 $ = 200 $ + 300 $
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Fig. 61 Accounting Equation: Balance Sheet Accounts are Common Stock + Retained Earnings                 Or, for a corporation:
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Fig. 62 Another Element of Balance Sheet: Current Assets Current Assets are expected to be converted to cash or  consumed within one year or an operating cycle, whichever is  longer. Current assets include the following accounts:
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