chapter1 - ACCT 311 CHAPTER 1 Financial Accounting...

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ACCT 311 CHAPTER 1 Financial Accounting Environment Financial Accounting: concerned with providing relevant financial information to various external users Focus: financial information provided by profit-oriented companies to their present and potential investors and creditors EX)Enron Corporation in 2001 failure shows importance of reporting reliable financial information Managerial accounting: concepts and methods used to provide information to an organization’s internal users, its managers. Financial Accounting provide: 1. The balance sheet or statement of finanacial position, 2. The income statement or statement of operations, 3. The statement of cash flows, 4. The statement of shareholders’ equity Financial reporting: process of providing this information to external users. (external users receive finanacial information in variety formats: news releases and management forecasts, prospectuses, and reports filed with regulatory agencies. The Economic Environment and Financial Reporting Capital markets: composite of all investors and creditors. (provide a mechanism to help our economy allocate resources efficiently) Three forms of business organization: sole proprietorship, the partnership, and the corporation. (SP and partnership outnumber corporations) Corporation: in terms of the ownership of productive resources. (corporate form makes it easier for an enterprise to acquire resources through the capital markets) Corporations acquire capital from investors in exchange for ownership interest and from creditors by borrowing. Secondary market transactions: transfers of theses stocks and bonds among individuals and institutions. (corporations receive no new cash) New cash: is provided by primary market transactions in which shares or bonds sold by the corporation to the initial owners. *these transaction help establish market prices for additional shares and for bonds that corporations may wish to issue in the future to acquire additional capital What information do investors and creditors need to decide which companies will be provided capital? The Investment-Credit Decision-A Cash Flow Perspective
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chapter1 - ACCT 311 CHAPTER 1 Financial Accounting...

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