1. FINANCIAL ACCOUNTING A USER PERSPECTIVE Hoskin Fizzell Davidson Second Canadian Edition

2. Overview of Corporate Financial Reporting Chapter One

3. Corporate Financial Reporting Accounting: the system whereby the underlying economic conditions of organizations and individuals are recorded, summarized, reported and understood.

4. Corporate Financial Reporting Financial statements: summarize a company’s performance during a particular period. Annual report: reports the results of the company’s activities during the year.

5. Forms of Business sole proprietorships partnerships joint ventures crown corporations corporations

6. Corporate Financial Reporting Shareholders’ equity: initial investment in the business entity Share: document that represents ownership in the corporation Shareholders: owners

7. Users of Financial Statements Internal users: –Management –Board of Directors External users: –Shareholders – Regulators –Potential investors – Taxing authorities –Creditors – Others

8. Generally Accepted Accounting Principles GAAP: –accounting guidelines –set by Canadian Institute of Chartered Accountants –published in the CICA Handbook

9. Characteristics of Accounting Information Understandability Relevance Reliability Comparability

10. Business Activities Financing Activities: –Borrowing money –Repaying loans –Issuing shares –Repurchasing shares –Paying dividends on shares

11. Business Activities Investing Activities: –Purchase or sale of property, plant, and equipment –Investments or sale of investments in the shares of other companies

12. Business Activities Operating Activities: –Sales to customers –Collection of amounts owed by customers –Purchase of inventory –Payment of amounts owed to suppliers –Payment of expenses –Payment of taxes

13. Annual Report Summary of financial highlights Auditors’ report Financial statements Supporting schedules

14. Financial Statements Income Statement Balance Sheet Statement of Retained Earnings Statement of Cash Flows Notes to the financial statements

15. Financial Statements Income Statement: –measures the operating performance of a company over a period of time

16. Financial Statements Income Statement: –Revenues (money or resources flowing into the company as a result of sales transactions) –Expenses (money or resources flowing out of the company related to sales transactions –Revenues — Expenses = Net Income

17. Financial Statements Balance Sheet: –measures the resources controlled by a company (assets) and the claims to those resources (liability and equity holders) at a given point

18. Basic Accounting Equation Assets = Liabilities + Shareholders’ Equity

19. Assets Something of value that the company owns or has the right to use Examples: –cash, temporary investments, accounts receivable, inventory, prepaid expenses, capital assets

20. Liabilities Amounts that the company owes to others Examples: –bank indebtedness, accounts payable, notes payable, dividends payable, accrued liabilities, taxes payable, long-term debt

21. Liquidity Assets and liabilities are listed on the balance sheet in liquidity order. Liquidity: how quickly the company can turn the asset into cash.

22. Shareholders’ Equity Value of the shareholders’ interest in the company as measured by the accounting guidelines. Examples: –share capital, retained earnings

23. Share Capital Represents the shares that have been issued by the company Usually stated at an amount equal to what was originally paid by investors for the shares.

24. Retained Earnings The earnings (as measured on the Income Statement) of the company that have been retained and not paid out in the form of dividends. Change in Retained Earnings = Net Income - Dividends

25. Financial Statements Statement of Cash Flows: –measures the change in cash flow over a period of time –sections: Operating activities Financing activities Investing activities

26. Auditors’ Report Professional accountants’ opinion as to whether the financial statements fairly present the results of the company’s operations Ethical considerations

27. Professional Accounting Organizations in Canada Canadian Institute of Chartered Accountants: (CAs) CMA Canada: Certified Management Accountants (CMAs) Certified General Accountants’ Association of Canada (CGAs)