NOTES - EXAM 1

CHAPTER 1: A FRAMEWORK FOR FINANCIAL ACCOUNTING

1.1. PRIMARY FUNCTIONS OF FINANCIAL ACCOUNTING
Accounting is a system of maintaining records of a company’s operations and communicating that information to
decision makers.

The two primary functions of financial accounting are:
 Measure business activities of a company.
 Communicate information about those activities to investors and creditors and other outside users for decision-
making purposes.


1.2. BUSINESS ACTIVITIES AND THEIR MEASUREMENT
The measurement role of accounting is to create a record of the activities of a company. To make this possible, a
company must maintain an accurate record of its assets, liabilities, stockholders’ equity, revenues, expenses and
dividends.




1.3. COMMUNICATING THROUGH FINANCIAL STATEMENTS
1. INCOME STATEMENT: reports the company’s revenues and expenses over an interval of time.
2. STATEMENT OF STOCKOLDERS’ EQUITY: reports information related to changes in common stock and retained
earnings each period.
3. BALANCE SHEET: presents the financial position of the company on a particular date.
4. STATEMENT OF CASH FLOWS: measures activities involving cash receipts and cash payments over an interval of time.

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