Financal Accounting chapter 2

 Financial statements

• Classified statement of financial position

• Assets, libailities shareholders' equity

• Using the fiananical statements

• Framework for the preparation and presentation of financial statements

• Qualitative characterisitics

• Cost constaint, going concern assumption

• Elements of financal statements and measurement

• Conceptual framework

 

 

Classified statement of financial position

• Classified statement of fiancal position generally contains the following standard classifications:

• Assets

• Current assets

• Cash

• Trading investments

• Accounting receivable

• Notes receivable

• Inventory

• Supplies

• Prepaid expenses

• Non-current assets

• Long-term investments

• Property, plan and equpment

• Intangible assets

• Goodwill

• Liabilities and Shareholders' equity

• Current Liabilities

• Bank indebtedness

• Accounts payable

• Deferred revenue

• Notes payable

• Current portion of long term debt

• Non-current Liabilities

• Notes payable

• Bank Loan payable

• Shareholder's equity

• Share capital retained earnings

 

 

Current Assets

• Assets expected to be converted to cash, sold or used in the business within one year of the fianancial statement date or one operating cycle, whichever is longer

• Operating cycle is the average time between when a business pays cash to obtain products or services and which it recieves cash from customers for these products or services

• Usually listed in order of liqudity, the order in which they expect current assets to be converted to cash, sold or used up

• Reverse order of liquidity also possible

 

 

 

Non-current assets

• Also known as long-term assets

• All assets not considered current

 

 

Long-term Investments

• Multi-year investments

• Debt securities: loans, notes, bonds, mortgages

• Equity securities: shares of other companies

• These assets are normally not intended to be sold and converted into cash within one year

 

 

 

Property, plant and equipment

• Tangible assets with relatively long useful lives

• Used in operating a business and provide benefits to companies over their useful lives

• Examples

• Land

• Buildings

• Equipment

• Furniture

• Computers

• Vechicales

• Usually listed in order of permanency

 

 

Depreciation

• Allocation (expense) of the cost of the property, plant, and equipment over their estimated useful lives

• Companies systematically assign a portion of the costs of an asset to expense every year

• IFRS recommends use the term depreciation for depreciable tangible assets and the term amortization of intangible assets with definite lives

• Under, ASPE, amortization is often used instead of depreciation for both tangible and intangible assets with definite lives

• The cost of long-lived assets with indefinite lives is not depreciated

• Accumulated depreciation accounting shows the total amount of depreciation expense recorded to date

• Accumulated deprecation is a contra asset account

• The difference between the cost of the asset and its accumulated depreciation is referred to as the carrying amount of the asset

• Depreciable assets are presented at their carrying amount

 

Intangible Assets

• Assets do not have physical subtance but have signigicant value

• Represent a privilege or a right granted to or held by the company

• Examples

• Patents, copyrights, trademarks, and licenses

• Generate a future value to the company

• Amortized if they do not have an indefinite life

 

 

Goodwill

• Represents the value of favourable, unidentifiable attributes related to the company as a whole

• Like intangibles it has no physical subtance

• Results from the acquistion of another company

• Unlike intangibles, it cannot be sold by itself

• Not amortized as it has indefinite life

• Reported separtely from other intangibles

 

 

Current Liabilities

• Obligations that are to be paid or settled within the longer of the one year of the financial statement date or on operating cycle

• Examples

• Bank indebtedness

• Accounting payable

• Deferred revenue

• Bank loand/notes payable

• Current portion of long-term debt

 

Non-current liabilities

• Obligations expected to be paid or settled after one year

• Examples

• Bank loans/notes payable

• Lease liabilites

• Pension and benefit obligations

• Deferred liabilities

• Usually accompanied by extensive notes to the financial statements

 

Shareholders' equity

• A residual amount equal to the difference between a company's assets and its liabilites

• Has 2 components

• Share capital

• Investment of cash or other assets in the company by shareholders in exchange for preferred or common shares

• Retained earning

• Cumulative net income or earning kept for sue in the company

 

 

 

Using the financial statements-data analytics

• Process of analyzing large amounts of data to find patterns and correlations, trends, insights

• Used to exchange decision making, including decisions impacting financial reporting

• Starts with developing questions that the data will help to answer

• Specific tools can be used to analyze the financial statements

• Ratio analysis expresses the relationships between selected fiancnial statement data

• Use comparisions to aid in analyses

• Intracompany comparisions

• Cover2 or more periods for the same company

• Intercompany comparisons

• Between the company and a competitor

• Industry average comparions

• Based on averages for particular industries

 

 

Ratio Analysis

• Profitability ratios

• Measure a company's income or operating success for a given period of time

• Liquidity Ratios

• Measure the company's short-term ability to pay its maturing obligatiosn and to meet unexpected needs for cash

• Solvency ratios

• Measure the company's ability to survive over a long period of time

 

 

Liquidity Ratios

• Measure a company's short term ability of a company to pay its maturing obligations and to meet its expected needs for cash

• Working capital = Current assets-current liabilites

• Current ratio= current assets/ currents liabilites

• Higher is generally better

• Working capital is ability to fulfil short term obligations

 

 

 

Solvency Ratio

• Measure a company's ability to survive over a long period of time

• The higher the % of debt to total assets, the greater risk that debts cannot be repaud when they are due

• Debt to Total assets = Total liabilites/Total assets

• Lower is generally better

 

 

Profitability Ratios

• Measure the income or operating success of a company for a given period of time, usually one year

• Basic earning per share= income available to commone shareholders/ weighted average number of common shares

• Price-earningsratio = market price per share/ basic earning per share

• Highre is generally better

 

 

 

 

Conceptual framwork for fiancial reporting

• The foundation foe the arrual basis of accounting

• Guides dcisions about

• What to present in fianancial statements

• Alternative ways of reporting economic events

• Appropriate ways of communcating this informaiton

• Some key items

• Objective of general-purpose financial reporting

• Qualitative characteristics of useful financial information

• Cost constraint

• Elements of financial statements

• Measurement of the elements of financial statements

 

 

General purpose financial reporting

• To provide financial information that is useful to existing and potential investors, lenders and other creditors

• Who are making decisions about prodivding resources to a company

• Buying, selling, holding equity and ebt

• Providing or settling loans or other credit

• Financial informatino is provided by general purpose financial statements

 

 

Fundamental qualitative Characteristics

• Relevance:

• Information has relevance if it makes a difference in users' decisions

• May have predictive value and or confirmatory value

• Materiality is important: will info if omitted or missTATED INFLUENnce the decisiosn of users

• Faithful representation:

• Info should reflect economic reali

• It must be complete, neutral and free from error

 

 

Enhancing qualitative characteristics

• Comparability

• When difference companies use the same accounting principles and apply them consistently each year

• Verifiability

• Indepdendent consensus that info is faithfully represented

• Timeliness

• Available before it loses its usefulness in decision-making

• Understandability

• Classified, characterized and preented clearly and concisely

 

 

Cost constraint

• Ensures that the value of th einfo procided by financial reporting is greater than the cost of providing it

• The benefits of financial reporting should justify the costs of providing  and using it

 

 

Going Concern Assumption

• The business will continue operating in the foreseeable future

• The key assumption - provides a foundation for accounting and justification for using costs as the value of certain assets

 

 

Measurement of the elements

• Accountants have developed principles that describe which, when and how the elements of financial statements should be

• Regcognized

• Measured

• Reported

• Known as generally accepted accounting principles

 

 

 

Generally accepted accounting principles- measurement

• Historical costs

• Assets and liabilities should be recorded at their cost when acquired

• Not only at the time of purchase, but throughout the life of  each asset and liability

• Fiar value

• Certain assets and liabilities can be recorded and reported at fair value

• In choosing between these 2 apply the concepts of relevance and faithful representation

 

 

Accounting and environment

• Users of statements have begun demanding more info about a company's environmental, social and goverance factors

• Public companies are now preparing sustainability reports

• Standards for preparation of this info are still evolving.

 

Financial Accounting Chapter 1

 

 

 

 

 

 

 

 

 

 

Chapter 1 Summary

• Accounting helps translate economic activity of an org to internal and external users.

• Proprietorship

• Owned by one person

• Limited life

• Unlimited Liability

• Responsible for income tax

• Partnership

• Owned by more than one person

• Limited life

• Each partner has unlimited liability

• Responsible for income tax

• Corporations

• Separate legal entity owned by shareholders

• Indefinite life

• Ease of raising capital

• Limited liabilirt

• Entity pays income tax

• Public or private

• Public has to can IFRS

• Private can choose from ASPE or IFRS

• Types of Business Activity

Intro to Business practice questions

 Chapter 11:

• Define Accounting:

• What is the primary purpose of accounting?

• Explain the role of accounting in identifying and recording economic events of an organization.

• Distinguish between Accounting and Bookkeeping:

• How does bookkeeping differ from accounting?

• Provide examples of activities involved in bookkeeping.

• Accounting Information System:

• Why is an organized procedure for identifying, measuring, recording, and retaining financial information important?

• Discuss the significance of accurate accounting information for a business.

• Users of Accounting Information:

• Identify and explain the different users of accounting information.

• How does accounting information benefit each type of user?

• Controller and Auditing:

• What is the role of a controller in an Accounting Information System?

• Differentiate between auditing and taxation services in accounting.

• Financial Statements:

• Describe the purpose of the income statement.

• Explain the information provided by the statement of changes in equity.

• Assets and Depreciation:

• Differentiate between current assets and non-current assets.

• What is depreciation, and why is it important in accounting?

• Intangible Assets and Liabilities:

• Provide examples of intangible assets.

• Differentiate between current and non-current liabilities.

• Financial Activities and Ratio Analysis:

• Explain financing activities in accounting.

• What are liquidity ratios, and how are they calculated?

• Objective of Reporting and Qualitative Characteristics:

• What is the main objective of financial reporting?

• Discuss the qualitative characteristics of accounting information.

• Enhancing Qualities of Useful Information:

• Explain the concepts of comparability, verifiability, and timeliness.

• How do these qualities enhance the usefulness of accounting information?

• Cost Constraint and Going Concern Assumption:

• What is the cost constraint in accounting?

• Discuss the significance of the going concern assumption.

• Accounting Cycle:

• Outline the steps involved in the accounting cycle.

• Why is the analysis of financial statements essential in the accounting cycle?

• International Accounting Standards:

• What is the goal of international accounting standards?

• How do these standards aim to eliminate differences in accounting practices globally?

• Ethical Behavior in Accounting:

• Why is ethical behavior important for accounting information?

• Discuss the role of codes of conduct in guiding ethical behavior in accounting.

Intro to Business Chapter 12 Notes

Delivering Value

• Customer buy products that offer the best value when it comes to meeting their needs and wants

• Value and benefit-value compares a product's benefits (fatures of the product and the meotional satisfaction associated with owning it) with its costs (including the price and the buyer's time)

• Value and utility- ability of a product to satisfy a human want or need is called utility. Marketing strives to provides 4 kinds of utility, form, place, possession, and time utility.

• Form features that we want

• Place offers something abaivalbe in a place where u can consume it and purcahse it

• Possession transfer ownership pride and satisfaction

• Time convient timing

 

Goods services and ideas

• Marketing can be desinged for

• Consumer goods:tangible products purcahse by peopl for their use

• Industrail goods: products purcahsed by companies to use directly or indeirctly to produce other product

• Services: in tangible products to serve users' needs

• Ideas- thoughts or philosophies (engage and drive growth)

 

Relationship marketing

• Building lasting relationships with customers and suppliers

• Can focus on estabilshing long term relationship with customer and with suppliers

• Consider that customer loyalty provides benefits through positive word of mouth adversisitn but also has economic benefits, as it is expensive to attract new customers

 

Customer relationship marketing (CRM)

• Organized methods used to build information connections to improve company-cilent relationships

• Data warehousing

• Data mining

 

 

Marketing Evironment

• The marketing environment = marketing srategies influence by marketing environment

• Potliical and Legal environment

• Legislation and government programs can be favourable or not

• Marketing managers try to maintain avour by

• Gaining public support products

• Advertising for public awareness of importantissues

• Lobbying and contributign to political parties

• Social and cultural environment

• Reflects the changin values, beliefs, and ideas of a society

• Sociocultural environment-- changing social values force companies to devop and promote new products

• Growing popularity of organic food

• Changes in social and cultural pratices lead to the death of some products and the birth of other. Changes in lifestlye create need for some products over other leading to market gorwth(such as the growth of the fitness industry as the population ages and becomes more health conscious)

 

Economic Environment

• Conditions affect spending patterns of businesses and indivduals

• The can dollar

• Inflation/deflation

• Interest rates

• Business cycle

• Because they determine spending patterns by consumers, businesses, and governments, economic conditions influence marketing plans for product offering, pricing and promotional strategies. Marketers are concerned with such economic variables as inflation, interest rates, and recession.

• Impacts discretionary spending