1、The Financial StatementsChapter 11第1页，共49页。Learning Objective 1Use accounting vocabulary.2第2页，共49页。Accounting LanguageAccounting is an information system that:Measures business activitiesProcess data into reports(financial statements)Communicates results to decision makers3第3页，共49页。Accounting Langua
2、geFinancial Statements:Financial information about a business entity that is prepared in a systematic report format that can be used by decision makers to make decisionsIncomeStatementBalanceSheetStatement ofCash Flow4第4页，共49页。The Flow of Accounting Information3.Businesses report their results.2.Bus
3、iness transactions occur.1.People make decisions.5第5页，共49页。IndividualsUsers of Financial StatementsInvestors andcreditorsGovernmentregulatoryagenciesNon-profitorganizationsTax Authorities6第6页，共49页。Financial AccountingSummarize business transactions of business entity for a specified periodUsers Exte
4、rnal decision makersInformation must:Be presented in systematic reports meet GAAP standards for relevance and reliability 7第7页，共49页。Management AccountingFinancial and operating data about an organizations activities,processes,operating units products services and customersUsers -internal decision ma
5、kersInformation-can generated using assumptions-Future oriented -not governed by GAAP8第8页，共49页。Ethics in AccountingInformation must be:1.RelevantInformation has predictiveor feedback valueCan influence a decisionTimelyReliableInformation is verifiableInformation must be objective9第9页，共49页。Ethics in
6、AccountingIntegrity is built in financial accounting as follows:Generally accepted accounting principles(GAAP)Audits of financial statementsSecurities commissionsInternal Control StructureAccounting Standards Board of the Canadian Institute of Chartered Accountants10第10页，共49页。Ethics in Accounting an
7、d BusinessStandards of professional conduct for accountantsSelf-regulating bodies of accountantsCICACGAACSMAC11第11页，共49页。ProprietorshipsPartnershipsCorporationsHow to Organize a Business12第12页，共49页。CorporationsStocksShareholdersCanadian Business Corporation ActBoard ofDirectorsChief Operating Office
8、rs,Presidents,Managers13第13页，共49页。How to Do Accounting:Principles and ConceptsThe rules that govern accounting are called GAAP(generally accepted accounting principles).Accountants follow professional guidelines.14第14页，共49页。GAAPCICA Handbook:official source of GAAP;sanctioned by federal and provinci
9、al governments and the Canadian Securities AdministratorsAccounting Standards Board(AcSB)Public Sector Accounting Standards Board Emerging Issues Committee(EIC)International Accounting Standards Board(IASB)15第15页，共49页。International Accounting Standards Board(IASB)IASB is charged with setting Interna
10、tional Financial Reporting Standards(IFRSs)Canadian GAAP will converge with IFRSs1st year for reporting under IFRS-based standards will be 201116第16页，共49页。Learning Objective 2Learnaccounting conceptsand principles.17第17页，共49页。Conceptual Framework Information must be useful for decision makersRelevan
11、ceReliabilityComparabilityUnderstandabilityGAAP18第18页，共49页。GAAP Requirements for Financial InformationGAAP requires:business entity conceptcost principlegoing concern assumptionobjectivity principleadequate disclosurestable dollar assumption19第19页，共49页。The Business Entity ConceptAn accounting entity
12、 is anorganization that stands apartas a separate economic unit.20第20页，共49页。Assets and services acquiredshould be recorded at theiractual(historical)cost.The Cost Principle21第21页，共49页。The Going-Concern ConceptThe entity will continueto operate in the foreseeable future.22第22页，共49页。(1)are verifiable
13、and(2)can be confirmed by anindependent observer.The Objectivity Principle23第23页，共49页。Adequate DisclosureFinancial statements should be accompanied by any information necessary for the statements to be interpreted properly.24第24页，共49页。The Stable-Monetary-Unit ConceptThe dollars purchasingpower is re
14、latively stable.25第25页，共49页。Learning Objective 3Apply the accounting equation to business organizations.26第26页，共49页。The Accounting Equation27第27页，共49页。The Accounting EquationAssetsOwnersEquityLiabilitiesAssets=Liabilities+Owners Equity28第28页，共49页。The Accounting EquationAssets are the economic resour
15、cesof a business that are expected toproduce a benefit in the future.Liabilities are“outsider claims”or economic obligationspayable to outsiders.Owners equity represents the“insider claims”of a business.29第29页，共49页。The Accounting EquationFor a corporation,shareholders equityis divided into two main
16、categories.Contributed capitalRetained earningsAssets=Liabilities+Shareholders equityAssets=Liabilities+Contributed capital+Retained earnings30第30页，共49页。The Accounting EquationContributed capital is the amount investedin the corporation by its owners.The basic component of contributedcapital is comm
17、on shares.Retained earnings is the amount earnedby income-producing activities andkept for use in the business.31第31页，共49页。The Accounting Equation:Net incomeRevenues are increases in retainedearnings from delivering goodsor services to customers.Expenses are decreases in retainedearnings that result
18、 from operations.32第32页，共49页。Components of Retained EarningsRevenues forthe periodExpenses forthe period=Net income(or Net loss)for theperiodDividendsfor theperiodEndingbalance ofretainedearningsEnd ofthe periodStart ofthe periodBeginningbalance ofretainedearnings+or=33第33页，共49页。Learning Objective 4
19、Evaluate business operations.34第34页，共49页。The Financial StatementsThe financial statements are a pictureof the company in financial terms.Each financial statement relates to a specificdate or covers a particular period.35第35页，共49页。Information Reported on the Financial Statements1.How well did the com
20、pany perform (or operate)during the period?Revenues Expenses Net income(Net loss)IncomestatementQuestionAnswerFinancialStatement2.Why did the companys retained earnings change during the period?Beginning Retained Earnings+Net income(or Net loss)-Dividends=Ending R.E.Statement of Retained Earnings36第
21、36页，共49页。Information Reported on the Financial Statements3.What is the companys financial position at the end of the period?Assets=Liabilities+Owners equityBalancesheetQuestionAnswerFinancialStatement4.How much cash did the company generate and spend during the period?Operating cash flows Investing
22、cash flows Financing cash flowsIncrease or decrease in cashCashflowstatement37第37页，共49页。The Balance Sheet:Measuring Operating PerformanceThe balance sheet or statement of financial position reports the companys assets,liabilities and owners equityas of a specific date.38第38页，共49页。The Income Statemen
23、t:Measuring Operating PerformanceThe income statement,statement ofoperations,or statement of earnings reports the companys revenues,expenses,and net incomeor net loss for the period.39第39页，共49页。The Cash Flow StatementThe cash flow statement reportsthe companys cash inflows andoutflows from operating
24、,investing,and financing activities.40第40页，共49页。Learning Objective 5Use financial statements.41第41页，共49页。Relationships Among the Financial StatementsIncome Statement Net IncomeStatement of Retained Earnings-Add net incomeBalance Sheet-Report retained earnings Cash Flow Statement-Report cash balance
25、from balance sheet42第42页，共49页。Starting a Business Example:Hot Dog VendorOwner(s)provide the fundsThese funds are used by the managers of the company to buyEquipmentInventoryOther Assets43第43页，共49页。Hotdog BusinessDetermine Business Structure:-proprietorship-partnership-corporation44第44页，共49页。Hotdog B
26、usinessAdministrative Requirements Register business with local business authorities Register business with tax authorities-Obtain GST/PST/Income tax accounts Contact lawyer to set up business Contact external accountant45第45页，共49页。Hotdog VendorManagers develop plans&set goals Make a profit Sell a h
27、igh quality product Set selling price to enable profit46第46页，共49页。Hotdog BusinessBusiness decisions that must be made before you open:Where to locate your hotdog stand How many stands Will you hire employees Hours of operation Advertising Contact suppliers Financing requirements47第47页，共49页。Hot Dog BusinessAs the business operates:Goods are sold(Revenue)Expenses are incurredProfit is invested in inventory,equipment,etc.Management-Prepare financial statementsExternal Auditors-Review financial statementsUsers-Use them to make decisions48第48页，共49页。End of Chapter 149第49页，共49页。
