Ch01 Notes - Chapter 1 Financial Accounting and Accounting...

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1- Chapter 1 – Financial Accounting and Accounting Standards Objective 1. Identify the major financial statements and other financial reporting. A. What is accounting? Identification, measurement, and communication of financial information about economic entities to interested parties Financial accounting parties Managerial accounting provides financial information for management to plan, evaluate and control an organization’s operations. 1. Identification, measurement, and communication of financial information (discuss difference between financial statements and financial reporting). a. Financial statements most frequently provided financial statements are: (1) Income statement. (2) Balance sheet. (3) Statement of cash flows. (4) Statement of changes in owner’s or stockholders' equity. Also Note disclosures are an integral part of F/S Financial Statements are GAAP b. Financial reporting: additional information which may be required by rule or custom or may be management’s decision examples: (1) President's letter or supplementary schedules in the annual report. (2) Prospectuses. (3) Reports filed with the SEC and other government agencies. (4) News releases and management forecasts. Not necessarily GAAP 2. About economic entities (discuss types of entities, corporations, partnerships, and proprietorships). 3. To interested parties (discuss stockholders, creditors, government agencies, management, employees, consumers, labor unions, etc.). Each has different agenda – sometimes their agendas conflict with each other.
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1- Objective 2. Explain how accounting assists in the efficient use of scarce resources. B. What is the environment in which accounting operates? Accounting is important for markets, free enterprise, and competion because it assists in providing information that leads to capital allocation. The better the information, the more effective the process of capital allocation and then the healthier the economy. In a world of scarce resources, Accounting helps to identify efficient and inefficient users of resources. An capital allocation process o promotes productivity, o encourages innovation, o provides efficient and liquid market for buying and selling securities o and efficient means of obtaining and granting credit Objective 3. Identify some of the challenges facing accounting. C. What are challenges facing financial accounting? 1. Non-financial measurements – management needs some key performance measures to evaluate performance 2. Forward-looking information – Tradtitional financial statements Use historical cost measure past events make projections of future earning hard 3. Soft assets. Traditional statements focus on hard assets (cash, inventory, property) &
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Ch01 Notes - Chapter 1 Financial Accounting and Accounting...

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