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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 owner’s or stock holders equity • Financial reporting includes financial statements (which follow GAAP procedures) and also additional information such as president’s letter, prospectuses, news releases, SEC reporting, management’s 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
- Financial Accounting, International Financial Reporting Standards, Financial Accounting Standards Board