Financial Accounting Ch1 Notes Essay

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Chapter 1: Overview of Corporate Financial Reporting
Accounting- an information system in which the underling economics conditions of the organizations/ individuals are recorded, summarized, reported, and understood
Financial statements- managements’ report to the companies’ owners that summarize how the company performed during a particular period.
-final set of documents produced at the end of an accounting period
-included in a larger annual report= main method management uses to report results of co’s activities at end of the year
-present financial information to users- telling them whether they are financially sounds, meeting their goals, likely to remain viable, etc

Forms of Organization
-profit seeking entities (corporations)
-governing organizations (federal, provincial, municipal governments)
-service entities (hospitals/ academic institutions)
-non-for-profit entities (charities and clubs)

-owners make initial investment in either cash or property -in sole proprietorships/ partnerships= owners’/ partners’ capital
Shareholders’ equity- corporation owners’ investments in company -represented by documents: shares -shares/stocks easily transferred/ sold without affecting company
Publicly Traded Corporations:
- large corps where these stocks are traded in public stock exchange
Privately Held Corporations:
-shares held by small #individuals= not traded in public stockshareholders more involved in company

Shareholders (elect) Board f Directors (hire) Senior Exec.s Managers (Managers) -Managers makes these financial statements/ annual reports

Users of Financial Statements
Internal Users
-Managemnet and the Board of Directors -used for pricing products, expanding operations, buy/ lease equipment, controlling costs -access to more info than that on the financial statements (managerial/ cost accounting)
External Users
-Shareholders/ Potential Investors -helps decide to buy/ sell more bonds comparing share price with company’s underlying value; change in worth of shares; work of current directs/ board members
-Creditors (3 major groups)
1. Sell goods/ services to company & willing to wait short period for payment -suppliers, employees, gov’t -focus on short term cash level in company
2. Financial Institutions- (banks) have loaned $ to company -short term or long term interested in Company’s cash level to asses future cash flow -want payment of debt+ interest; need for information is broader
3. Investors—purchased longterm debt (ex: corporate bonds) -like financial institutions; but will make lending/ investing decisions
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