Chapter 1- managerial accounting PDF

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Chapter 1: A Framework of Financial Accounting 

Accounting system of maintaining records of a company’s operations and communicating that information to decision makers

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Decisions people make about companies o Investors decide whether to invest in stock o Creditors decide whether to tend money o Customers decide whether to purchase products o Suppliers decide the customer’s ability to pay for supplies o Managers decide production and expansion o Employees decide employment opportunities o Competitors decide market share and profitability o Regulators decide on social welfare o Tax authorities decide on taxation policies o Local communities decide on environmental issues

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A cycle: accountants communicate information to investors and creditors o Investors and creditors make decisions about companies o Companies activities are measured by accountants

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Managerial Accounting: information provided to internal users

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Financial Accounting: info provided to external users o Measure business activities of a company o Communicate them to an external party for decision making purposes o Ex: investors want to make good decisions about buying and selling their shares of the company’s stock

o Ex: creditors make decisions related to lending money the company 

Measuring Business Activities o Ex: company named Eagle Fold Academy needing $35,000 to start  Need to raise cash-> creditor (Bank) gives loan of $10,000 to be paid in 3 years  Equipment is $24,000  Future use of equipment is $11,000  11,000+24,000=35,000 (resources) o The investors and creditors have claim on the company’s resources. Creditors have claims on amount they loaned. o Investors have claim on everything else o Creditors ($11,000) o Investors ($25,000)

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Corporation: a company that is legally separate from its owners. o Stockholders have limited liability meaning it prevents stockholders from being help personally responsible for the financial obligations of the corporation. Stockholders can lose their investment, but not personal assets like homes, cars, computers, furniture. o Sole proprietorship: business owned by one person o Partnership: business owned by two of more persons  Disadvantage: if sold, owners must have sufficient personal funds to finance the business in addition to the ability to borrow money. Neither offers limits liability, owners are responsible for the activities of the business. Double Taxation

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Financing activities: transactions made with investors and creditors ex: issuing stock on borrowing money form a bank

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Investing Activities: transactions involving the purchase and sale of resources that are expected to benefit the company for several years, such as equipment

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Operating activities: transactions relating to the primary operations of the company such as providing products and services to customers and costs of doing so. ex: rent. Salary, utilities, taxes, advertising

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Assets: the resources of a company

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Liabilities amount owed to creditors

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Equity: amount the owners have/claim (stockholders) o Assets = liabilities + equity

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Revenues: amounts recorded when the company sells products or provides services to customers

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Expenses: costs of providing products and services ex: salaries, rent, supplies, utilities

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Net income: difference of revenue and expenses

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Net loss: expenses being greater than revenues. Negative net income

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Net: difference between tow amounts

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Positive new income may go to stockholders or to future operating expenses

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Dividends: cash payments back to stockholders to the end of the months. Not expenses o Company ownership does not equal resources

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