BE1-1 Briefly define accounting. What are the three main characteristics of accounting? Is accounting static or dynamic?
Accounting collects, analyzes, measures and records financial information about an organization and reports that information to stakeholders and decision makers. Accounting has 3 essential characteristics. Accounting is the (1) identification, measurement, and communication of financial information about economic entities to interested persons. Like social sciences, accounting is largely a product of its environment. Overtime, economic entities have become ever increasing in size and complexity. As a result, accounting objectives and practices are not the same today as they were in the past. Accounting theory and practice have always evolved and will continue to evolve.
BE1-2 .Explain generally how financial accounting and managerial accounting are different from each other?
Financial accounting measures, classifies, and summarizes in report form those activities and that information which relate to the enterprise as a whole for use by parties both internal and external to a business enterprise. The principal focus can be seen to be external to the enterprise. Managerial accounting also measures, classifies, and summarizes in report form enterprise activities, but the communication is for the use of internal, managerial parties, and relates more to subsystems of the entity. Managerial accounting is management decision oriented and directed more toward product line, division, and profit centre.
BE1-3 How does accounting help the capital allocation process?
Accounting has the responsibility of measuring company performance accurately and fairly on a timely basis. This enables investors and creditors to assess the relative risks and returns of investment opportunities and channel resources more effectively. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right managers and companies are able to attract investment capital. Unreliable and irrelevant information leads to poor capital allocation, which adversely affects the securities market and ultimately the performance of the economy as a whole.
BE1-4 Identify at least 3 major stakeholders that use financial accounting information and briefly explain how these stakeholders might use the information form financial statements.
Some stakeholders who use financial accounting information and financial statements are: Investors- these stakeholders are interested in the performance of their investment in the company. They will use the financial statements to evaluate management stewardship and effectiveness. Creditors- these stakeholders are interested in evaluating the company to decide whether to lend money to it. They will use the statements to evaluate the risk that will be taken in making the loan. For example, lenders want to know whether the company will be able to repay its loans when due and service interest and principal on a timely basis. Canada Revenue Agency- these stakeholders establish the rules for how taxable income will be measured. They are interested in the fair measurement of the financial position and performance of the company so that the appropriate amount of tax will be paid. Note that in preparing the tax return, the financial statements, net income is the starting point and is then adjusted to arrive at taxable income, which is used to calculate the amount of taxes payable. Financial Analysts- these stakeholders provide investment advice to their clients. They are interested in evaluating the investment opportunities and potential of various companies.
BE1-5 What is the difference between “financial statements” and “financial reporting”?
Financial statements generally refer to the four basic financial statements: balance sheet, income statements, statement of cash flows, and statement of changes in owners’ or shareholders’...
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