Chapter 1: Financial Statements and Business Decisions I. Users of Accounting 1. External 2. Internal managers II. Discipline of Accounting 1. Financial (Financial Statements) 2. Managerial (Cost) III. Rule making body 1. GAAP (Generally Accepted Accounting Principles) measurement rules used to develop the information in the financial statements 2. SEC (security & Exchange Commission) determines the measurement rules 3. FASB (Financial Accounting Standards board) responsibility to work out the detailed rules that become GAAP IV. Financial Statements 1. Income Statement Revenue – Expenses = Net Income • Revenues Earning from business • Expenses Spending on business • Net Income excess of total revenues over total expenses 2. Statement of Retained Earnings Beginning RE + Net Income – Dividends = Ending RE • Retained Earnings Money reinvested in the business • Dividends return of the shareholders investment
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