PDF FINANCIAL ACCOUNTING - Webs
[Pages:43]FINANCIAL ACCOUNTING
Robert Libby Patricia A. Libby Daniel G. Short
Irwin/McGraw-Hill
? The McGraw-Hill Companies, Inc., 2001
Chapter 1
Financial Statements and
Business Decisions
Irwin/McGraw-Hill
? The McGraw-Hill Companies, Inc., 2001
The Objectives of Financial Accounting
Financial statements are the primary means of communicating financial information to parties outside the business organization.
Balance Sheet Income Statement
Irwin/McGraw-Hill
Stakeholders
? The McGraw-Hill Companies, Inc., 2001
Business Background
Business owners (called investors or stockholders) look for two sources of
possible gain:
Sell ownership interest in the future for more than they
paid.
Receive a portion of the company's earnings in cash (dividends).
Irwin/McGraw-Hill
? The McGraw-Hill Companies, Inc., 2001
Business Background
Creditors lend money to a company for a specific length of time and gain by
charging interest on the money loaned.
Loan
Irwin/McGraw-Hill
Interest
Dana's Diner
? The McGraw-Hill Companies, Inc., 2001
Understanding Business Operations
Manufacturers either make the parts needed to produce its products or buy
the parts from suppliers.
Manufacturer
Product
Customer
Irwin/McGraw-Hill
? The McGraw-Hill Companies, Inc., 2001
Understanding Business Operations
All businesses have an accounting system that . . .
Collects and processes financial information about an organization.
Reports information to decision
makers.
Business managers (internal)
Investors (external)
Irwin/McGraw-Hill
? The McGraw-Hill Companies, Inc., 2001
Understanding Business Operations
Accounting System
Financial Accounting System (preparation of four basic financial statements).
Managerial Accounting System (preparation of detailed plans,
forecasts and reports).
External Decision Makers (investors, creditors,
suppliers, customers, etc.).
Irwin/McGraw-Hill
Internal Decision Makers (managers throughout the
organization).
? The McGraw-Hill Companies, Inc., 2001
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