Financial Accounting 1.25.11

Financial Accounting 1.25.11 - Financial Accounting 1/25/11...

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Financial Accounting 1/25/11 Who cares about a firm’s condition? - Creditors - Competitors - Employees - Shareholders - Customers o People bought a lot of General Motors for a while until GM nearly went bankrupt - Suppliers - The point is a lot of people are looking at these financial statements Financial statements relay information about viability of a company - if it’s misleading information, or fraudulent, then some bad decisions are going to be made *corporations keep 2 sets of accounting records - one is for all the people listed above, the financial statesments that are generally accepted accounting principles known as GAP - and one for taxing authorities - That’s how financial statements are constructed - That means the income can be different on financial statement and what’s reported to tax authorities - some other countries it’s not that way but in the US is that way Balance sheet lists all the financial statements at a particular time period. - it will list on one side all the assets of the company o assets are just resources Assets = shareholder liabilities and equity - other side of balance sheet is the source of those resources Most balance sheets are for a year’s period. The balance sheets are going to be dated at the year’s end A fiscal year means that it can end anytime. Some companies do not use calendar year. Retailers do not use a calendar year (because they want to get all revenue and returns, so their year ends on end of January) For our purposes, balance sheets will be dated 12/31/10 etc. Every transaction in a company has to be recorded electronically (the process is still the same) What we see at year end is all that’s happened to the account balances One of the way firms record transaction = Journal Entry
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- a journal entry is an original entry. We figure out how we should best capture that transaction in financial statements. To be a proper journal entry you need a Debit Entry (DR) and a Credit Entry (CR) Lets suppose we’re just starting a firm. We’re going to make a corporation. First thing we need to do is attain some cash. I’m going to be the owner of the firm. Lets say we have 10k dollars and we put it in our company. We become the only owner of our company. We’re going to transfer that 10k dollars from personal account to new corporation
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Financial Accounting 1.25.11 - Financial Accounting 1/25/11...

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