AC221 Midterm 1 - Chapter 1-3 Classes 1-6 9\/4 Role of Accounting Ch 1 Efficiently Allocating Capital \u25cf Capital(Savings \u25cb Areas to put money in \u25a0

AC221 Midterm 1 - Chapter 1-3 Classes 1-6 9/4 Role of...

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Chapter 1-3 Classes 1-6 9/4 Role of Accounting Ch 1 Efficiently Allocating Capital Capital (Savings) Areas to put money in Bank Safety and convenience Incur interest but very low Facilitate transactions However, inflation is greater than the interest value, slowly decreases value of money Businesses (Ideas, assets, and processes) Invest in brand and get brand well known How to achieve dreams Investors Takes money to make money Savers are sitting on money that is decreasing in value so you would like to put the money into good investments Would ask for financial statements Performance Income statement Financial position Representation of current resources and obligations However, business owners have incentives to show better performance than reality Need to see accuracy of these financial statements Security Exchange Commission (SEC) created standard guidelines for how to prepare financial statements that are in compliance with the rules and guidelines (follow the target for accuracy) Auditors Oversee the preparation of these financial statements Benefits each other if product does well and makes a lot of money Ideal world, business is successful, creates returns and creates more savings
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Capital -> investments ->businesses -> returns -> to beginning again In the middle of everything that facilitate efficient capital allocation Effective accounting institutions Regulations Practices Prior to the faith in the financial statements, everyone got money from friends and family. Much harder to grow business from a small group of investors. Possibilities are so much greater now Beneficiaries Accounting firms that work the SEC Investors who get money back Business owners who get the money to grow their business Consumers with more diverse products Government can tax Employees because more jobs are created What is Accounting? Information system Measures business activities Processes data into financial statements Communicates results to decision makers Objective To provide financial information about the reporting entity that existing and potential investors, lenders and other creditors can use to make decisions Attempts to reflect business economics in a manner that is useful to decision makers Financial statements reflects measurements of firm position and performance Promotes appropriate resource allocation by firms and capital markets Who uses accounting information? Types of firms For-profit Partnerships, corporations, etc Non-profit Government entities Outside of the firm Owners (equity investors)/ creditors Potential owners and creditors Consultants Competitors Industry associations Industry analysts
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Auditors Government agencies to regulate private sectors General public Inside firm Board of directors (representing owners and evaluating senior management) Management Senior Profit center Cost center Anyone who manages a budget Controlling functions Accountants
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  • Spring '09
  • Huang
  • Balance Sheet, Generally Accepted Accounting Principles

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