Chapter 1 - Chapter 1 Financial Statements and Business...

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Chapter 1: Financial Statements and Business Decisions UNDERSTANDING THE BUSINESS (Maxidrive Corporation) The Players Owner-managers : founders also function as managers of business; common in new businesses Creditor : lender; hope to gain by charging interest on money lended Investors : owner of small percentage of company; hope to receive portion of what company earns in form of cash payments ( dividends ) and eventually sell share of company at higher price than they paid Financing activities : exchanging money with lenders and owners Investing activities : buying or selling items such as plant and equipment The Business Operations Understanding operating activities (product manufactured, major parts, etc.) is essential in understanding company’s financial statements Suppliers : companies who supply the parts needed for the product Customers : company or individuals the product is sold to (i.e. manufacturers in the case of Maxidrive) The Accounting System Accounting : system that collects and processes financial information about organization and reports that information to decision makers Internal decision makers : managers External decision makers : parties outside the firm such as investors or creditors Managerial or management accounting : developing accounting information for internal decision makers Financial accounting : accounting for external decision makers FOUR BASIC FINANCIAL STATEMENTS Can be prepared any point in time and apply to any time span but usually quarterly reports and annual reports Balance Sheet Statement of financial position Reports amount of assets, liabilities, and equity of an accounting entity at a point in time Structure (pg. 7) o Heading has name of entity, title of statement (balance sheet), specific date of statement (at date), unit of measure (in
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