FINANCIAL ACCOUNTING A USER PERSPECTIVE

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FINANCIAL ACCOUNTINGA USER PERSPECTIVE

• Hoskin Fizzell Davidson
• Second Canadian Edition

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Overview of Corporate Financial Reporting

• Chapter One

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Corporate Financial Reporting

• Accounting the system whereby the underlying
  economic conditions of organizations and
  individuals are recorded, summarized, reported
  and understood.

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Corporate Financial Reporting

• Financial statements summarize a companys
  performance during a particular period.
• Annual report reports the results of the
  companys activities during the year.

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Forms of Business

• sole proprietorships
• partnerships
• joint ventures
• crown corporations
• corporations

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Corporate Financial Reporting

• Shareholders equity initial investment in the
  business entity
• Share document that represents ownership in the
  corporation
• Shareholders owners

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Users of Financial Statements

• Internal users
• Management
• Board of Directors
• External users
• Shareholders Regulators
• Potential investors Taxing authorities
• Creditors Others

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Generally Accepted Accounting Principles

• GAAP
• accounting guidelines
• set by Canadian Institute of Chartered
  Accountants
• published in the CICA Handbook

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Characteristics of Accounting Information

• Understandability
• Relevance
• Reliability
• Comparability

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Business Activities

• Financing Activities
• Borrowing money
• Repaying loans
• Issuing shares
• Repurchasing shares
• Paying dividends on shares

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Business Activities

• Investing Activities
• Purchase or sale of property, plant, and
  equipment
• Investments or sale of investments in the shares
  of other companies

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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

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Annual Report

• Summary of financial highlights
• Auditors report
• Financial statements
• Supporting schedules

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Financial Statements

• Income Statement
• Balance Sheet
• Statement of Retained Earnings
• Statement of Cash Flows
• Notes to the financial statements

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Financial Statements

• Income Statement
• measures the operating performance of a company
  over a period of time

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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

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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

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Basic Accounting Equation

• Assets Liabilities
  Shareholders Equity

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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

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Liabilities

• Amounts that the company owes to others
• Examples
• bank indebtedness, accounts payable, notes
  payable, dividends payable, accrued liabilities,
  taxes payable, long-term debt

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Liquidity

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

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Shareholders Equity

• Value of the shareholders interest in the
  company as measured by the accounting guidelines.
• Examples
• share capital, retained earnings

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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.

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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

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Financial Statements

• Statement of Cash Flows
• measures the change in cash flow over a period of
  time
• sections
• Operating activities
• Financing activities
• Investing activities

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Auditors Report

• Professional accountants opinion as to whether
  the financial statements fairly present the
  results of the companys operations
• Ethical considerations

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Professional Accounting Organizations in Canada

• Canadian Institute of Chartered Accountants
  (CAs)
• CMA Canada Certified Management Accountants
  (CMAs)
• Certified General Accountants Association of
  Canada (CGAs)