Intermediate Acct 1 Walmart acts a sole reporting entity provides general purpose can be used by multiple different people financial statements Two primary users Investors Reporting of financial information impacts financial markets price of traded stock Creditors Reporting of financial information impacts debt pricing and interest rates Consolidated Revenue one economics entity EX all of Walmart Individual revenue segments different Walmart different stores Gross margin sales COGS sales Operating income income after general operating expenses ROA Net income total assets Basis points 1 bp 1 100 200 bp 2 00 GAAP Generally accepted accounting principles Adjusted not GAAP Financial Accounting is the process by which we financial information about Identification measurement and communication of Economic entities to Interest parties Focused on external parties not internal parties Akerlof Model Adverse selection something being willing offered off isn t worth having Financial accounting reduces information asymmetry by providing information about companies to investors thereby reducing the problem of adverse selection Objectivates of Financial Reporting Provide Financial information about the reporting entity that is useful to a wide verity of users o Present and potential equity investors o Lenders o Other creditors Assist in making capital allocation decisions Capital Providers Need information that is o Relevant o Faithfully presented o Comparable timely and understandable o Generally Accepted Accounting Standards Accounting profession GAAP o Balance Sheet o Income statement o Equity Statement o Statement of Cash Flows o Notes Securities and Exchange Commission SEC Oversee all accounting and reporting for public entities Requires companies to adhere to GAAP enforce it not set the standards Financial Accounting Standards Board Sets the accounting standards Establish and improve standards of financial accounting and reporting FASB Codification all the authoritative literature related to a particular topic Using the codification Analysis with judgement Key terms Recognize Incorporate a particular item in financial statements Measure Assign a numerical amount to a financial item Derecognize Remove a financial item from financial statements Disclose include information about a financial item in the notes Expectations Gap difference between one person expectations and another s IFRS International Financial Reporting standards a complete set of standards prepared and updated by the IASB international accounting standards board Independent Auditors verifying financial documents and statements Ethics and Financial Reporting AICPA and IMA codes of ethics