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Unformatted text preview: Chapter One Essential Characteristics of Accounting are to identify, measure, and communicate financial information about economic entities to interest parties Financial statements include the balance sheet, income statement, statement of cash flow, statement of owners or stock holders equity Financial reporting includes financial statements (which follow GAAP procedures) and also additional information such as presidents letter, prospectuses, news releases, SEC reporting, managements forecast, environmental reports Financial accounting: the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties Managerial accounting: the process of identifying, measuring, analyzing, and communicating financial info needed by management to plan, control, and evaluate operations Accounting and Capital Allocation Accountants must measure performance accurately and fairly on a timely basis, so that the right managers and companies are able to attract investment capital Financial reporting: the financial info a company provides to help users with capital allocation decisions about the company Users: investors and creditors use financial reports to make their capital allocation decisions Capital allocation: the process of determining now and at what cost money is allocated among competing interests Challenges Facing Financial Accounting Nonfinancial measurements: fail to provide customer satisfaction indexes, backlog info and reject rates on goods purchased Financial reports mainly look at what happened, they are not forward looking Soft assests: financial reports focus on hard assets Timeliness: companies do not provide real time financial statements...
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- Spring '07