Chapter_1_Lecture_Notes_GQF-_Student

Chapter_1_Lecture_Notes_GQF-_Student - Chapter 1 The...

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Chapter 1 12/29/11 1 The Purpose and Use of Financial Statements
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Learning Objectives 1. Identify the different users and their information needs 2. Describe the information conveyed to different decision makers in each of the 4 financial statements namely: Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flow 3. Define GAAP- IFRS or ASPE? 4. Explain the role of managers and auditors in the accounting communication process 5. Understand the importance of ethics, reputation and legal liability in accounting 12/29/11 2 After studying this chapter, you should be able to:
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Users Perspective OBJECTIVES OF FINANCIAL ACCOUNTING Identifies and records the economic events of an organization Communicates financial information to those running the business and outsiders Both quantitative and qualitative information about the operation or business entity Financial statements - financial information about a company to outside parties about a business organization. 12/29/11 3
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Who are the users of Financial Statement Information? Internal Users: Management Board of Directors Manage, plan, organize and run a business External Users: Shareholders Potential Investors Creditors Regulators/tax authorities 12/29/11 4
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What are some examples of users’ information needs? Business owners/ investors/ shareholders look for two things: 1. Increase value of organization– for future sale– long term goal 2. Converting Earnings to Dividends- short term goal 12/29/11 5 Creditors lend money to a company for a specific length of time: 1. Earn interest 2. Received debt repayment
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There are 3 different forms of business organizations (Appendix 1a) Sole Proprietorships Owner personally responsible for business debt. Not a legal entity separate from owners Partnerships Partners personally responsible for all partnership debts Corporation Separate legal entity, corporation responsible for its own debt May be public or private 12/29/11 6
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12/29/11 7 Accounting System Financial Accounting System (preparation of four basic financial statements) Managerial Accounting System (preparation of detailed plans, forecasts, standard costing and reports) Communicates to External Decision Makers Communicates to Internal Decision Makers Collects and process information Reports information to decision makers
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Responsibilities for the Accounting Communication Process Preparer of the information must effectively communicate to the reader/users on a timely basis 12/29/11 8 Decision makers Decision makers (readers/users) (readers/users) need to understand need to understand accounting measurement rules. accounting measurement rules.
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This note was uploaded on 12/29/2011 for the course MANAGEMENT MGTB05 taught by Professor Georgequanfun during the Fall '11 term at University of Toronto- Toronto.

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Chapter_1_Lecture_Notes_GQF-_Student - Chapter 1 The...

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