ACCT 327 Chp 1 notes

ACCT 327 Chp 1 notes - Accounting327Chapter1Notes

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Accounting 327 Chapter 1 Notes The essential characteristics of accounting are: o (1)The identification, measurement, and communication of financial information  about  o (2) economic entities to  o (3) interested parties Financial Accounting : the process that culminates in the preparation of financial  reports on the enterprise for use by both internal and external parties o Users: investors, creditors, managers, unions, and government agencies Managerial Accounting : the process of identifying, measuring, analyzing, and  communicating financial info needed by management to plan, control, and evaluate a  company’s operations The financial statements most frequently provided are : o The balance sheet o The income statement o The statement of cash flows o The statement of stockholders’ equity Difference between financial statements and financial reporting o Financial statements are the principal means through which a company  communicates its financial info to those outside it o Financial Reporting is where financial info is provided by reporting rather than by  formal financial statements Three objectives of financial reporting : o Financial reporting should provide info that :
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Is useful to users  in making rational investment, credit, and similar  decisions Helps users  assess the amounts, timing, and uncertainty of prospective  cash receipts  from dividends or interest and the proceeds from the sale,  redemption, or maturity of securities or loans. Clearly portrays the economic resources of an enterprise, the claims to  those resources. o In Brief : (1) Useful in investment and credit decisions , (2)  useful in assessing cash  flow prospects , and (3)  about company resources, claims to those  resources, and changes in them o This information should be comprehensible to those who have a  reasonable  understanding  of business and economic activities and are willing to study the  info with reasonable diligence Accrual Accounting : o Ensures that a company records events that change its financial statements in  the periods in which the events occur, rather than only in the periods in which it  receives or pays cash o Recognizes revenues when earned and expenses when incurred o Information based on accrual accounting generally better indicates a company’s  present and continuing ability to generate favorable cash flows than does info  limited to the financial effects of cash receipts and payments The Challenges Facing Financial Reporting : o Nonfinancial Measurements : financial reports fail to provide some key  performance measures widely used by management, such as customer 
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This note was uploaded on 11/04/2009 for the course ACCT 327 taught by Professor Knight during the Spring '08 term at Texas A&M.

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ACCT 327 Chp 1 notes - Accounting327Chapter1Notes

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