Corporate Financial Accounting

1
Corporate Financial Accounting

• Overview
• Forms of Business Organization
• Major Corporate Activities (text exhibit)
• Users of Financial Statement Information
  (text exhibit)
• Managerial vs. Financial Accounting
• Development of Acctg. Standards
• Qualitative Characteristics of Acctg Info
  (text exhibit)
• Major Financial Statements Example
  Sears Canada Inc.

2
Forms of Business Organization

• Sole Proprietorship
• Partnership
• Limited Partnership
• Joint Ventures
• Crown Corporations
• Corporations (predominant structure of large
  businesses in Canada)

3
Managerial vs. Financial Accounting

• Managerial
• internal users
• operational decision-making (e.g. pricing, lease
  vs. buy)
• access to more sources of financial information
• more frequent reporting

4
Managerial vs. Financial Accounting

• Financial
• primarily external users
• e.g. investment, credit approval, regulatory
• access generally limited to quarterly and annual
  reports
• the focus of this course

5
Development of Acctg. Standards

• Accounting Standards Board (AcSB) of the Canadian
  Institute of Chartered Accountants (CICA) sets
  acctg guidelines - published in the CICA
  Handbook.
• Financial Accounting Standards Board (FASB) sets
  acctg guidelines for U.S. corporations.
• The set of guidelines that corporations use is
  known as Generally Accepted Accounting
  Principles (GAAP).

6
Development of Acctg. Stds.

• The Conceptual Framework (i.e. financial
  statement and financial acctg concepts) is a set
  of underlying objectives and concepts developed
  by the CICA to justify new acctg standards.
• Both the framework and standards have been
  developed through consensus of the various users
  of financial information.

7
Development of Acctg. Stds.

• Financial statements
• must be prepared so that users are able to find
  the info they need to make decisions about the
  company.
• should describe what the co. owns (assets), to
  whom it has obligations (liabilities), what is
  left over (equity), changes in the above items
  (CFS), and results of the operations of the co.
  (income statement).

8
Major Financial Statements

• Balance Sheet - a snapshot or picture of a
  firms financial position at a given point in
  time. (Assets - Liabilities Shareholders
  Equity)
• Income Statement - describes the result of
  earnings activities/transactions over a period of
  time. (Revenues - Expenses Net Income)
• Cash Flow Statement - shows the effect on cash
  (and cash equivalents) of the co.s activities
  over a period of time..
  (Operating Activities Financing
  Activities - Investing Activities Change
  in Cash)

9
Balance Sheet

• Characteristics of an Asset
• Something that has probable future value.
• The probable future value can be measured.
• The corporation owns or has the right to use the
  probable future value.
• The event that gave the corporation the ownership
  or right has already happened.
• Current Assets are those that will likely be
  turned into cash or used up in the next year or
  operating cycle.

10
Balance Sheet

• Characteristics of a Liability
• Items that require the probable future sacrifice
  of resources.
• Creditors claims on the resources of the
  company. (i.e. the amounts that the corporation
  owes to others).
• The event that gave rise to the liability has
  already occurred.
• Current Liabilities are those that will be paid
  within the next year or operating cycle.