CHAPTER 1
FIANACIAL ACCOUNTING FOR MBAs
FINANCIAL STATEMENT INFORMATION: DEMAND AND SUPPLY
The following broad classes of users possess a demand for financial accounting information:
1. Managers and Employees – for their own well-being and future earning potential and for use in compensation and bonus
2. Investment Analysts and Information Intermediaries – to predict company’s future performance and to provide stock recommendations/commentaries.
3. Creditors and Suppliers – to monitor and adjust their contracts and commitments with the company.
4. Shareholders and Directors – to access the profitability and risk of companies.
5. Customers and Strategic Partners – to Access Company’s ability to provide products/services as agreed and to access a company’s staying power and reliability.
6. Regulators and Tax agencies – for antitrust assessments, public protection, price setting, import-export analyses, and setting tax policies.
7. Voters and their representatives – for policy decisions and to monitor government spending.
Supply of Information:
The quality and quantity of accounting information are determined by managers’assessment of the benefits and costs of disclosure.
Benefits of Disclosure:
There are real economic benefits for companies to disclose reliable accounting information enabling them to better compete in capital, labor, input, and output markets.
Costs of Disclosure:
• Preparation and dissemination
• Competitive disadvantages
• Litigation potential
• Political costs
FINANCIAL STATEMENTS:
1. Balance Sheet
2. Income statement
3. Statement of Stockholder’s equity
4. Statement of cash flows
Balance Sheet:
Reports company’s financial position at appoint of time.
Investing = Non-owner financing + Owner Financing
Assets = Liabilities + Equity
Income Statement:
Reports on a company’s performance over a period of time.
Revenues - Expenses = Net Income (loss)
Manufacturing and merchandising companies include Costs of...