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AFM101 Sept 10, 2008 Lecture Notes Chpt 2-6: Broad but more detailed overview of accounting = on midterm Four Major

Financial Statements:  Balance Sheet: Snapshot of the position of a company o Measurement of the financial position  Income Statement o Performance of the company over a period of time  Statement of Retained Earnings (Or statement of shareholder’s equity) o Accumulated wealth of shareholders  Cash Flow Statement o Cash flow over period of time External Users Profit-oriented Organization  (eg. CPR, RIM)  Who would be reading these financial statements? Creditors, Shareholders, Government Customers, Labor union, Auditors, Not-for-profit organization  (eg. Red Cross, Salvation Army, Hospitals, United Nations, University of Waterloo)  No shareholders in not-for-profit organizations Canada Revenue or large creditors have the power to force companies to provide financial statements in a certain way.

GAAP (Generally Accepted Accounting Principles)  “Rules” for financial statements, set method of preparing  Principles can change over time  Differ Across Countries b/c principles evolve over time, in diff ways, in diff countries  Eg. US principles Vs. CAN principles National Versus International Canadian Pacific Railway (CPR) Financial Statement  Tells which accounting principles they use (CAN Principles)  (Rim uses US principles)  Companies provide accounting principles according to the shareholders and people that must look at their financial statements (eg. Trading shares on New York Stock Exchange, Canadian stock exchange) Sources  FASB (Financial Accounting Standards Board)  IASB (International Accounting Standards Board)

Obligations to the creditors of the organizations .Financing provided by the owners Fundamental Equation: ASSETS = Liabilities + Shareholder’s Equity Income Tax Payable: . accounts payable.Eg.Creditors are NOT owners of the organizations . Bank loans.Diff b/w calculation of tax and tax already paid to government . RIM uses US dollars and US accounting principles  If you operate in multiple countries. mortgage payable. income tax payable Owner’s Equity . your financial statements will be understandable throughout much of the world SEC (securities and exchange commission) o o Currency  Financial Statements can be prepared in ANY currency  Eg. how much do they owe Assets .Economic resources controlled by the entity . prepaid expenses. Inventory. CPR uses Can dollars and US accounting principles  Eg.Financial position of a company in a point of time o How much do they own. cash.Eg. financial documents and currency must be translated according to the country Balance sheet .  Is creating IFRS (International Financial Reporting Standards) Canada will be moving to IFRS by 2011  Good thing both accounting principles are similar By using IFRS.Can be an asset but usually liability . accounts receivables Liabilities .