ch01-1 - TheFinancialStatements The...

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he Financial Statements The Financial Statements 1. The role of accounting in business 2. Four main financial statements 3. Links between the four statements
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The Language of Business Accounting is an information system Measures business activities Processes data into reports Communicates results to people and organizations Accounting is used to make decisions 1-2
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Accounting is a process of… Translating events into financial statements Some Examples of events include: p 1) The GAP issues long term bond. 2) Northwest purchases a new airplane. 3) Au Bon Pain sells an apple
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Users of Accounting Information Investors & Managers Creditors Taxing uthorities Suppliers & Authorities Customers 1-4
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Financial and Management Accounting FINANCIAL Provides MANAGEMENT Provides information for external users : information for internal users: Investors Bankers Managers of the company Government agencies Sales and marketing Board of directors 1-5
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Writing the Rules for Financial Reporting
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Who Writes the Accounting Rules? GAAP is an acronym for G enerally A ccepted A ccounting P rinciples The Financial Accounting Standards Board ( FASB ) is authorized by the SEC to formulate U.S. GAAP ASB’s Conceptual Framework states that FASB s Conceptual Framework states that accounting should be: Relevant Reliable Comparable onsistent Consistent 1-7
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What About the Rest of the World? ternational Accounting Standards Board (IASB) International Accounting Standards Board (IASB) Two sets of standards accepted for use in most major nancial markets: financial markets: U.S. GAAP, issued by the FASB International Financial Reporting Standards (IFRS), issued th IASB by the IASB FASB and IASB recognize that global markets will best be served if only one set of GAAP is used. ‐‐ US GAAP and IFRS are converging and IFRS is likely to be the final set of rules used by everyone… 1-8
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Accounting Concepts Separate Entity Assumption A business is separate from its owners Reliability Accounting is based on objective evidence ost Cost Assets are recorded at cost (vs. fair value) Going Concern Assumption g p Business will continue indefinitely Monetary Unit Transactions are recorded in a stable currency ($) 1-9
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World of a Financial Statement User Financial Accounting = translates events Events into financial statements G enerally Rules A ccepted A ccounting nciples (GAAP) & Management hoice P rinciples (GAAP) Management selects om alternative rules choice from alternative rules and estimates under GAAP Financial Statements
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t i hi f lbi Accounting choices for a simple business Mike had $25. He bought two T shirts from a wholesaler, ne for $10 nd e other for $ 5 ny loss/profit? one for $10 and the other for $15. Any loss/profit?
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This note was uploaded on 11/27/2011 for the course ACCY 2001-17 taught by Professor Xue during the Fall '11 term at GWU.

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ch01-1 - TheFinancialStatements The...

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