Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
FinancialStatements
andBusiness
Decisions
Chapter 1
1-3
Understanding the Business
Owner-Managers
Founders of the business who also function as managers are called Owner-Mangers.
Creditors
Creditors lend money for a specific period of time and gain by charging interest on the money they lend.
Investors
Investors buy ownership in the company in the form of stock.
1-4
Understanding the Business
Investors purchase stock (or ownership) in businesses hoping to gain in two ways:
Sellownership
interest in thefuture for more
than they paid.
Receive aportion of thecompany’s
earnings in cash(dividends).
1-5
The Business Operations
Manufacturers either make the parts needed to produce its products or buy the parts from
suppliers.
Manufacturer Final Product Customer
1-6
Learning Objectives
Recognize the information conveyed in each of the four basic financial statements and the way
that it is used by different decision makers (investors, creditors, and managers).
Recognize the information conveyed in each of the four basic financial statements and the way
that it is used by different decision makers (investors, creditors, and managers).
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The Accounting System
Collects and processesfinancial information
Reportsinformationto decision
makers
Managers(internaldecisionmakers)
Investors and
Creditors(externaldecisionmakers)
1-8
The Accounting System
Accounting System
Financial Accounting SystemPeriodic financial statements and
related disclosures
Managerial Accounting SystemDetailed plans and continuous
performance reports
External Decision MakersInvestors, creditors,
suppliers, customers, etc.
Internal Decision MakersManagers throughout the
organization
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The Four Basic Financial Statements
Income StatementBalance Sheet
Statement of Cash Flows Statement of Retained Earnings
Financial statements summarize the financial activities of the business.
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The Four Basic Financial Statements
Companies can prepare financial statements at the end of the year, quarter or month.
Financial statements prepared at the end of the year are called annual
reports.
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Let’s look at MAXIDRIVE
CORP.’s financial
statements.
1-12MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
1. Name of entity2. Title of statement3. Specific date4. Unit of measure
The Balance Sheet reports the financial
position of an entity at a
particular point in time.
The Balance Sheet reports the financial
position of an entity at a
particular point in time.
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The Balance Sheet
Basic Accounting Equation
Assets = Liabilities + Stockholders’ EquityAssets = Liabilities + Stockholders’ Equity
EconomicResources Sources of Financing for
Economic Resources
1-14MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
Assets are listed Assets are listed by their ease ofby their ease ofconversion into conversion into
cash.cash.
Assets are listed Assets are listed by their ease ofby their ease ofconversion into conversion into
cash.cash.
CashAmount of cash in the company’s bank accounts.
Accounts receivable
Amounts owed by customers from prior sales.
InventoriesParts and completed but unsold products.
Plant and equipment
Factories and production machinery.
Land Land on which factories are built.
AssetsAssets are are economic economic resources resources
owned by the owned by the business as a business as a result of past result of past transactions.transactions.
AssetsAssets are are economic economic resources resources
owned by the owned by the business as a business as a result of past result of past transactions.transactions.
1-15MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
LiabilitiesLiabilities are are debts or debts or
obligations of obligations of the business the business
that result from that result from past past
transactions.transactions.
LiabilitiesLiabilities are are debts or debts or
obligations of obligations of the business the business
that result from that result from past past
transactions.transactions.
Accounts payable
Amounts owed to suppliers for prior purchases.
Notes payable
Amounts owed on written debt contracts.
1-16MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
Contributed capital
Amounts invested in the business by stockholders.
Retained earnings
Past earnings not distributed to stockholders.
EquityEquity is the is the amount of amount of financing financing
provided by provided by owners of the owners of the business and business and
earnings.earnings.
EquityEquity is the is the amount of amount of financing financing
provided by provided by owners of the owners of the business and business and
earnings.earnings.
1-17MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
Use Use $$ on the on the first item in a first item in a
groupgroupand on the and on the group total.group total.
Assets = Liabilities + Stockholders’ Equity
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1. Name of entity2. Title of statement 3. Specific period of time (Unlike the balance sheet, this statement covers a specified period of time.)4. Unit of measure
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The The Income StatementIncome Statement reports the reports the revenues minus expenses of the revenues minus expenses of the
accounting period.accounting period.
The The Income StatementIncome Statement reports the reports the revenues minus expenses of the revenues minus expenses of the
accounting period.accounting period.
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Revenues are earnings from the sale of goods or services to customers. Revenue is recognized in the
period in which goods and services are sold, not necessarily the period in which cash is received.
Revenues are earnings from the sale of goods or services to customers. Revenue is recognized in the
period in which goods and services are sold, not necessarily the period in which cash is received.
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Revenues
June 2006
Cash from salecollected on June 10th.
XMay 2006
$1,000 sale madeon May 25th.
X
When will the revenue from thistransaction be recognized?
When will the revenue from thistransaction be recognized?
Earnings from the sale of goods or services.Earnings from the sale of goods or services.
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Revenues
Earnings from the sale of goods or services.Earnings from the sale of goods or services.
When will the revenue from thistransaction be recognized?
When will the revenue from thistransaction be recognized?
May 2006
$1,000 sale madeon May 25th.
X
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Expenses are the dollar amount of resources usedExpenses are the dollar amount of resources usedup by the entity to earn revenues during a period. An up by the entity to earn revenues during a period. An
expense is recognized in the period in whichexpense is recognized in the period in whichgoods and services are goods and services are usedused, not necessarily, not necessarily
the period in which cash is paid.the period in which cash is paid.
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Cost of goods sold
The cost to produce products sold this period.
Selling, general and
administrative
Operating expenses not directly related to production.
Research and development
Expenses incurred to develop new products.
Interest expense
The cost of using borrowed funds.
Income tax expense
Income taxes on current period’s pretax income.
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Expenses
May 2006 June 2006
May 11 paid $75 cashfor newspaper ad.
X
Ad appearson June 8th.
X
The dollar amount of resources usedThe dollar amount of resources usedup by the entity to earn revenuesup by the entity to earn revenues
during a period.during a period.
The dollar amount of resources usedThe dollar amount of resources usedup by the entity to earn revenuesup by the entity to earn revenues
during a period.during a period.
When will the expense for thisWhen will the expense for thistransaction be recognized?transaction be recognized?
When will the expense for thisWhen will the expense for thistransaction be recognized?transaction be recognized?
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Expenses
Advertising expenseAdvertising expenserecorded in June.recorded in June.
The dollar amount of resources usedThe dollar amount of resources usedup by the entity to earn revenuesup by the entity to earn revenues
during a period.during a period.
The dollar amount of resources usedThe dollar amount of resources usedup by the entity to earn revenuesup by the entity to earn revenues
during a period.during a period.
When will the expense for thisWhen will the expense for thistransaction be recognized?transaction be recognized?
When will the expense for thisWhen will the expense for thistransaction be recognized?transaction be recognized?
June 2006X
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If expenses exceed revenues,If expenses exceed revenues,we report net loss.we report net loss.
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MAXIDRIVE CORP.Statement of Retained Earnings
For the Year Ended December 31, 2006(in thousands of dollars)
Retained earnings, January 1, 2006 6,805$ Net income for 2006 3,300 Dividends for 2006 (1,000) Retained earnings, December 31, 2006 9,105$
1. Name of entity2. Title of statement 3. Specific period of time (Like the income statement, this statement covers a specified period of time.)4. Unit of measure
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The The Statement of Retained EarningsStatement of Retained Earnings reports the way that net reports the way that net income and the distribution of dividends affect the financial income and the distribution of dividends affect the financial
position of the company during a period.position of the company during a period.
The The Statement of Retained EarningsStatement of Retained Earnings reports the way that net reports the way that net income and the distribution of dividends affect the financial income and the distribution of dividends affect the financial
position of the company during a period.position of the company during a period.
MAXIDRIVE CORP.Statement of Retained Earnings
For the Year Ended December 31, 2006(in thousands of dollars)
Retained earnings, January 1, 2006 6,805$ Net income for 2006 3,300 Dividends for 2006 (1,000) Retained earnings, December 31, 2006 9,105$
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Statement of Cash Flows
Because revenues reported do not always equal
cash collected. . .
. . . and expensesreported do not
always equalcash paid . . .
net income isusually not equal
to the changein cash forthe period.
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MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
1. Name of entity2. Title of statement 3. Specific period of time (Like the income statement, this statement covers a specified period of time.)4. Unit of measure
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MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
The The Statement of Cash FlowsStatement of Cash Flows reports the inflows and reports the inflows and outflows of cash during the period in the categories of outflows of cash during the period in the categories of
operatingoperating, , investinginvesting, and , and financingfinancing..
The The Statement of Cash FlowsStatement of Cash Flows reports the inflows and reports the inflows and outflows of cash during the period in the categories of outflows of cash during the period in the categories of
operatingoperating, , investinginvesting, and , and financingfinancing..
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MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
Cash flows directly related to Cash flows directly related to earning income are shown in the earning income are shown in the
operating sectionoperating section..
Cash flows directly related to Cash flows directly related to earning income are shown in the earning income are shown in the
operating sectionoperating section..
1-34
MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
Cash flows related to the acquisition Cash flows related to the acquisition or sale of productive assets are or sale of productive assets are shown in the shown in the investing sectioninvesting section..
Cash flows related to the acquisition Cash flows related to the acquisition or sale of productive assets are or sale of productive assets are shown in the shown in the investing sectioninvesting section..
1-35
MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
Cash flows from or to investors or Cash flows from or to investors or creditors are shown in the creditors are shown in the financing financing
sectionsection..
Cash flows from or to investors or Cash flows from or to investors or creditors are shown in the creditors are shown in the financing financing
sectionsection..
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MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
The statement ends with a The statement ends with a reconciliation of Cashreconciliation of Cash..
The statement ends with a The statement ends with a reconciliation of Cashreconciliation of Cash..
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Relationship Among the Financial Statements
MAXIDRIVE CORP.Statement of Retained Earnings
For the Year Ended December 31, 2006(in thousands of dollars)
Retained earnings, January 1, 2006 6,805$ Net income for 2006 3,300 Dividends for 2006 (1,000) Retained earnings, December 31, 2006 9,105$
Net incomeNet income from the from the income statement income statement
increases ending retained increases ending retained earningsearnings on the statement on the statement
of retained earnings.of retained earnings.
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MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
MAXIDRIVE CORP.Statement of Retained Earnings
For the Year Ended December 31, 2006(in thousands of dollars)
Retained earnings, January 1, 2006 6,805$ Net income for 2006 3,300 Dividends for 2006 (1,000) Retained earnings, December 31, 2006 9,105$
Relationship Among the Financial Statements
Ending retained earningsEnding retained earnings from the statement of from the statement of
retained earnings is one of retained earnings is one of the components of the components of
stockholders’ equitystockholders’ equity on the on the balance sheet.balance sheet.
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MAXIDRIVE CORP.Balance Sheet
At December 31, 2006(in thousands of dollars)
AssetsCash 4,895$ Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets 27,261$
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 7,156$
Notes payable 9,000
Total liabilities 16,156$
Stockholders' EquityContributed capital 2,000$ Retained earnings 9,105 Total stockholders' equity 11,105
Total liabilities and stockholders' equity 27,261$
Relationship Among the Financial Statements
The The change in cashchange in cash on the statement of cash flows added to the on the statement of cash flows added to the beginning of the year balancebeginning of the year balance in cash equals the in cash equals the ending balance ending balance
in cashin cash on the balance sheet. on the balance sheet.
MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
Cash flows from operating activities: Cash collected from customers 33,563$ Cash paid to suppliers and employees (30,854) Cash paid for interest (450) Cash paid for taxes (1,190) Net cash flow from operating activities 1,069$ Cash flow from investing activities: Cash paid to purchase equipment (1,625)$ Net cash flow from investing activities (1,625)
Cash flow from financing activities:
Cash received from bank loan 1,400$
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year (156)$
Cash at beginning of the year 5,051
Cash at end of the year 4,895$
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Notes
Notes provide supplemental Notes provide supplemental information about the financial information about the financial condition of a company.condition of a company.
Three basic types of notes:Three basic types of notes: Description of accounting rules applied.Description of accounting rules applied. Presentation of additional detail about an Presentation of additional detail about an
item on the financial statements.item on the financial statements. Provide additional information about an Provide additional information about an
item not on the financial statements.item not on the financial statements.
Notes provide supplemental Notes provide supplemental information about the financial information about the financial condition of a company.condition of a company.
Three basic types of notes:Three basic types of notes: Description of accounting rules applied.Description of accounting rules applied. Presentation of additional detail about an Presentation of additional detail about an
item on the financial statements.item on the financial statements. Provide additional information about an Provide additional information about an
item not on the financial statements.item not on the financial statements.
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Management Uses of Financial Statements
Marketing managers and credit managers use customers’ financial statements to decide
whether to extend credit.
Purchasing managers use suppliers’ financial statements to decide whether suppliers have the
resources to meet our demand for products.
Employees’ union and human resource managers use the company’s financial
statements as a basis for contract negotiations over pay rates.
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Price/Earnings Ratio
Price/Earnings Ratio =Market Price (of the Company)
Net Income
This ratio is one method This ratio is one method for estimating the value for estimating the value
of a company.of a company.
This ratio is one method This ratio is one method for estimating the value for estimating the value
of a company.of a company.
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Learning Objectives
Identify the role of generally accepted accounting principles (GAAP) in determining
the content of financial statements.
Identify the role of generally accepted accounting principles (GAAP) in determining
the content of financial statements.
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Decision makers need to understandDecision makers need to understandaccounting measurement rules.accounting measurement rules.
Decision makers need to understandDecision makers need to understandaccounting measurement rules.accounting measurement rules.
Responsibilities for the Accounting Communication Process
Effective communication means that the Effective communication means that the recipient understands what the sender recipient understands what the sender
intends to convey.intends to convey.
Effective communication means that the Effective communication means that the recipient understands what the sender recipient understands what the sender
intends to convey.intends to convey.
1-45
How are Generally Accepted Accounting Principles Determined?
Our accounting system has a long and distinguished history. An Italian monk named Luca
Pacioli, published the first elements of double-entry bookkeeping in 1494.
Prior to 1933, the management of most companies were free to choose the accounting principles used to keep track of its transactions.
1-46
The The Securities and Exchange CommissionSecurities and Exchange Commission (SEC) (SEC)has been given broad powers to determine has been given broad powers to determine
measurement rules for measurement rules for financial statements.financial statements.
The The Securities and Exchange CommissionSecurities and Exchange Commission (SEC) (SEC)has been given broad powers to determine has been given broad powers to determine
measurement rules for measurement rules for financial statements.financial statements.
Securities Act of 1933Securities Act of 1933Securities and Exchange Act of 1934Securities and Exchange Act of 1934
Securities Act of 1933Securities Act of 1933Securities and Exchange Act of 1934Securities and Exchange Act of 1934
Generally Accepted Accounting Principles (GAAP)
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Generally Accepted Accounting Principles (GAAP)
Currently, the Currently, the Financial AccountingFinancial AccountingStandards Board (FASB)Standards Board (FASB) is recognized is recognized
as the body to formulate GAAP.as the body to formulate GAAP.
Currently, the Currently, the Financial AccountingFinancial AccountingStandards Board (FASB)Standards Board (FASB) is recognized is recognized
as the body to formulate GAAP.as the body to formulate GAAP.
The SEC has worked closely with theThe SEC has worked closely with theaccounting profession toaccounting profession to
work out the detailed rules that havework out the detailed rules that havebecome known as GAAP.become known as GAAP.
The SEC has worked closely with theThe SEC has worked closely with theaccounting profession toaccounting profession to
work out the detailed rules that havework out the detailed rules that havebecome known as GAAP.become known as GAAP.
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Generally Accepted Accounting Principles (GAAP)
Companies incur the cost of preparing the financial statements and bear the
following economic consequences . . .
Effects on the selling price of stock. Effects on the amount of bonuses received by managers and other employees. Loss of competitive information to other companies.
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International Perspective
Since 2002, there has been substantial movement to develop international financial reporting standards by the International Accounting
Standards Board (IASB).
1-50
Learning Objectives
Distinguish the roles of managers and auditors in the accounting communication process.
Distinguish the roles of managers and auditors in the accounting communication process.
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To ensure the accuracy of the company’sfinancial information, management:
Maintains a system of controls. Hires outside independent auditors. Forms a board of directors to review these two safeguards.
Management Responsibility and the Demand for Auditing
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Independent Auditors
Auditors express an opinion as to the fairness of the financial statement presentation.
Independent auditors have responsibilities that extend to the general public.
Overall, I believethese financialstatements are
fair.
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Independent Auditors
An audit involves . . .An audit involves . . . Examining the financial reports to Examining the financial reports to
ensure compliance with GAAP.ensure compliance with GAAP. Examining the underlying Examining the underlying
transactions incorporated into the transactions incorporated into the financial statements.financial statements.
Expressing an opinion as to the Expressing an opinion as to the fairness of presentation of financial fairness of presentation of financial information. information.
1-54
Learning Objectives
Appreciate the importance of ethics, reputation, and legal liability in accounting.
Appreciate the importance of ethics, reputation, and legal liability in accounting.
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Ethics, Reputation, and Legal Liability
The The American Institute of Certified Public American Institute of Certified Public AccountantsAccountants requires that all members requires that all members adhere to a professional code of ethics.adhere to a professional code of ethics.
1-56
A CPA’s reputation for honesty and competence is his/her most important asset.
Like physicians, CPAs have
liability for malpractice.
Ethics, Reputation, and Legal Liability
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End of Chapter 1