BU127 Lecture Notes - Lecture 1: Accounting Equation, Statement Of Changes In Equity, International Financial Reporting Standards
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BU127 Full Course Notes
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Document Summary
Collect cash from customers and pay creditors. Individuals and groups who provide the initial capital to a business are called investors. Creditors provide the company with resources but do not own a share of the company. For example, a bank may lend funds to the company that must be repaid in the future along with interest. The bank is a creditor of the company. Most companies hire managers to oversee the day-to-day operations of the business. The managers are responsible to the owners of the company. Banks: upside is limited but downside is huge. Agency theory (*contracts btwn investors, creditors, and managers) Moral hazard: may not do much for the money you"re being paid by your employer, managers uses money on perks (nice cars, private airplanes) Information asymmetry: one party has information that the other party does not know, employee knows how the business is doing, but the investors/creditors do not.
