BU387 Study Guide - Fall 2018, Comprehensive Midterm Notes - Financial Statement, Balance Sheet, Accounting
BU387
MIDTERM EXAM
STUDY GUIDE
Fall 2018
BU387- CHAPTER 1
Financial Statements and Financial Reporting- Intro
• Accounting is largely a product of its environment- includes constraints, conditions,
rules, regulations, and influences that can be social, economic, political, etc.
• Accounting landscape has changed drastically over the last little bit, because of:
o Business failures (Enron, Arthur Andersen)
o Capital market failures (subprime lending crisis)
o Near bankruptcies of several countries (Greece)
o Globalization of financial reporting standards
o More sophisticated technology, and thus increasing access to information
• Financial Accounting- process that culminates in the preparation of financial reports
oeig all of a usiess’ atiities. Uses of these epots ilude iestos,
creditors, and others.
• Managerial Accounting- process of identifying, measuring, analyzing, and
communicating financial information to internal decision makers. Examples could
include cost-benefit analysis, forecasts, budgets, etc.
• Common Financial statements
o Statement of financial position
o Statement of income/comprehensive income
o Statement of cash flows, and
o Statement of changes in equity
• Note disclosures- capture some relevant information not captured in financial
statements- include prospectuses, reports, Pesidet’s lette, es eleases, et.
Accounting & Capital Allocation
• Objective 1: Explain how accounting makes it possible to use scarce resources more
efficiently
o Since our resources are limited, we try to conserve them, use them
effectively and identify and encourage those who can achieve that
o Through an efficient use of resources, our standard of living increases
• Information provided by Accounting enables investors and creditors to measure and
compare income vs assets of a company and assess relative risks vs returns
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Capital Allocation
Sources of capital
• In Canada, the primary exchange mechanisms of allocating resources are debt and
equity markets, as well as financial institutions such as banks
• Effective capital allocation is critical- efficient capital markets promote productivity,
encourage innovation, and provide a platform for buying and selling securities and
obtaining/granting credit
• Stock prices generally rises when positive news is unexpectedly released while credit
rating agenies use aoutig ifoatio to ate a opa’s fiaial stailit
Stakeholders
• Objective #2- Eplai the eaig of stakeholde ad idetif ke stakeholdes i
financial reporting, explaining what is at stake for each one
• Stakeholders are parties who have something at risk in the financial reporting
environment- their salary, job, reputation, or investment.
• Users may be broadly defined to include not only parties relying on the financial
information for resource allocation (investors/creditors) but also those who help in
the efficient allocation of resources themselves (analysts/regulators)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
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