chap001 - Financial Statements and Business Decisions and...

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Financial Statements Financial Statements and Business Decisions and Business Decisions Chapter 1
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The Objectives of Financial Accounting Financial statements are the primary means of communicating financial information to parties outside the business organization. Balance Sheet Income Statement Stakeholders
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3 1-3 The Objectives of Financial Accounting Financial statements are the primary means of communicating financial information to parties outside the business organization. Balance Sheet Income Statement Stakeholders
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4 1-4 The Accounting System Collects and processes financial information Reports information to decision makers Managers (internal decision makers) Investors and Creditors (external decision makers)
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5 1-5 The Accounting System Accounting System Financial Accounting System Periodic financial statements and related disclosures Managerial Accounting System Detailed plans and continuous performance reports External Decision Makers Investors, creditors, suppliers, customers, etc. Internal Decision Makers Managers throughout the organization
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6 1-6 The Four Basic Financial Statements Income Statement Balance Sheet Statement of Cash Flows Statement of Retained Earnings Financial statements summarize the financial activities of the  business.
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1-7 The Four Basic Financial Statements 1. On a company’s BALANCE SHEET, all resources owned and amounts owed are listed in order of liquidity. The difference between the resources owned and the amounts owed, represents the stockholders’ equity in the business. 2. On a company’s INCOME STATEMENT, all the revenues earned from sales to customers are listed along with the expenses incurred to produce those revenues. 3. On a company’s STATEMENT OF RETAINED EARNINGS accumulated net earnings less the dividends paid to owners represent reinvestments in the core business. 4. On a company’s STATEMENT OF CASH FLOWS, all sources and uses of cash are listed. Cash is generated by the company’s operations. Cash is spent on investments in buildings, manufacturing equipment, and other assets. Financing activities involve amounts borrowed from long-term
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chap001 - Financial Statements and Business Decisions and...

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