Chapter Introducing Financial Accounting 1 ©2020 Cambridge Business Publishers
What is Accounting? 2 ©2020 Cambridge Business Publishers Accounting is… The process of recording, summarizing, and analyzing financial transactions To help people make economic decisions Financial Accounting Designed primarily for decision makers outside of the company Managerial Accounting Designed primarily for decision makers within the company
Who Uses Accounting Information? ©2020 Cambridge Business Publishers 3 Demand for Informati on Current Shareholder s Potential Shareholder s Governmen t Agencies Directors Financial Analysts Creditors Suppliers Customers Managemen t
Information Needs of Decision Makers 4 ©2020 Cambridge Business Publishers Investors and analysts Creditors Suppliers and customers Financial Accounting Managerial Accounting Top management Marketing Teams Production and operations Who are the Decision Makers? Buy and sell stock? Lend or not? Purchase/sell goods or not? Develop new strategy? Launch a new product or not? Manage operations What Decisions are Made? Sales and costs Cash in and cash out Assets and liabilities Product sales and costs Department performance Budgets and quality reports What Information is Needed?
Shareholders 5 ©2020 Cambridge Business Publishers The shareholders of large corporations… Provide resources such as cash to a corporation in exchange for stock ownership Not involved in day-to-day business operations Rely on financial statement information To evaluate management performance Assess the company’s financial condition Predict future success
Creditors and Suppliers 6 ©2020 Cambridge Business Publishers Creditors Banks and other lenders that provide money that must be repaid Use financial accounting information to assess loan terms, loan amounts, interest rates, collateral Suppliers Provide supplies, inventory, etc. needed for operations Use financial information to establish credit sales terms and to determine long-term commitment to supply-chain relations
Managers and Directors 7 ©2020 Cambridge Business Publishers Management Compensation often linked to financial performance through bonuses, stock options and other incentive compensation Board of Directors Elected by shareholders to represent shareholder interest and oversee management Required by law for publicly traded companies Uses financial accounting to review the results of operations, evaluate future strategy, and assess management performance
Costs and Benefits of Disclosure 8 ©2020 Cambridge Business Publishers What is disclosure? Providing Benefits May lower financing costs through lower borrowing rates May lower operating costs through better prices from suppliers who see a long-term relationship Cost Hiring accountants to prepare financial statements Cost of allowing competitors to see information Political costs–regulation and increased taxes
Financing Activities 9 ©2020 Cambridge Business Publishers Investing Assets
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