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Unformatted text preview: Answers to discussion questions. 1-9 Internal users: Owners, managers, employees, directors, internal auditors; External users: Current and potential equity investors, current and potential debt investors, current and potential creditors, current and potential suppliers, current and potential customers, labor unions members and representatives, regulators, and government agencies. 1-10 A business pursues four major activities in a desire to provide a saleable product and/or service and to yield a satisfactory return on investment. These activities are: Planning activities . A company implements specific goals and objectives. A company's goals and objectives are captured in its business plans (or strategies) that describe the company's purpose, strategy, and tactics. The business plan assists managers in focusing their efforts and identifying expected opportunities and obstacles. Financing Activities . A company requires financing to carry out its business plan. Financing activities are the means companies use to pay for these ventures. A company must take care in acquiring and managing its financial resources because of both their magnitude and their potential to determine success or failure. There are two main sources of business financing: equity investors (referred to as owner financing) and creditors (referred to as non-owner financing). Investing Activities . Investing activities are the means a company uses to acquire and maintain investments for purchasing, developing, and selling products and services. Financing provides the funds necessary for acquisition of investments needed to carry out business plans. Investments include land, buildings, equipment, legal rights (patents, licenses, and copyrights), inventories, human capital (managers and employees), accounting systems, and all components necessary for the company to operate. Operating Activities . Operating activities represent the carrying out of the business plan, given necessary financing and investing. These activities involve several basic functions such as research, purchasing, production, marketing, and labor. Operating activities are a company's primary source of income. Income measures a company's success in buying from input markets and selling in output markets. How well a company does in devising business plans and strategies, and with decisions on elements comprising the mix of operating activities, determines its success or failure. Business activitiesplanning, financing, investing, and operatingcan be synthesized into a cohesive picture of how businesses function in a market economy. Step one is the company's formulation of plans and strategies. Next, a company obtains necessary financing from equity investors and creditors. Financing is used to acquire investments in resources to produce goods or services. The company uses these investments to undertake operating activities. 2-11 Under the historical cost model, asset and liability values are determined on the basis of...
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- Fall '11