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ACC321- Book Notes - 13:36:00 o measurement, eco

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ACC 321- CHAPTER 1 BOOK NOTES 31/01/2011 13:36:00 Chapter 1- Financial Accounting and Accounting Standards Financial Statements and Financial Reporting o Essential characteristics of accounting are the identification,  measurement, and communication of financial information about  economic entities to interested parties o Financial accounting- process that culminates in the preparation of  financial reports on the enterprise for use by both internal and external  parties o Managerial Accounting- process of identifying, measuring, analyzing,  and communicating financial information needed by management to  plan, control, and evaluate a company’s operations o Financial Statements- the balance sheet, the income statement, the  statement of cash flows, and the statement of owners’ or stockholders’  equity Disclosures are an integral part of each financial statement o Financial Reporting- the financial information a company provides to  help users with capital allocation decisions about the company Accounting and Capital Allocation o – the process of determining how and at what cost money is allocated  among competing interests The challenges Facing Financial Accounting o Nonfinancial measurements- financial reports failed to provide some  key performance measures widely used by management, such as  customer satisfaction indexes, or reject rates on goods purchased o Forward-looking Information- Financial reports failed to provide  forward-looking information needed by present and potential investors  and creditors o Soft Assets- Financial reports focused on hard assets (inventory, plant  assets) but failed to provide much information about a company’s soft  assets (intangibles, which are often the best kind of assets o Timeliness- Companies only prepared financial statements quarterly,  and provided audited financials annually
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o The most innovative companies offer section of their annual reports in  a format that the user can readily manipulate such as in an excel  spreadsheet Objectives of Financial Reporting o Is useful to present and potential investors and creditors and other  users in making rational investment, credit, and similar decisions. Also  information should have a reasonable understanding o Helps present, potential investors, and creditors assess the amounts,  timing, and uncertainty of prospective cash receipts from dividends or  interest o Clearly portrays the economic resource of an enterprise, the claims to  those resources and the effects of the transactions that change its  resources o Information based on accrual accounting generally better indicates a 
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