Chapter 1

Basic Accounting Equation

Basic Accounting Equation

Assets= Liabilities + Stockholder’s equity

Organizational Forms

1. Sole Proprietorship

2. Partnership

3. Corporation

4. Others

Accounting is a system of…

analyzing recording and summarizing the results of business activities, reporting to decision makers

4 Major External Users

1. Creditors

2. Investors

3. Directors

4. Government

Goal of Accounting

Useful Information

Assets

1. Cash

2. A/R -Accounts Receivable

3. Inv - inventory

4. Equipment

Liabilities

1. A/P

2. N/P

Accounts and Notes Payable

Stockholder’s Equity

1. CS - Common Stock

2. RE - Retained Earnings

Net income is not…

Expenses all…

Dividend is not an…

cash

cost

expense

Dividends

1. Often paid in cash

2. Optimal

3. Declared by board

4. Not an expense

4 Financial Statements

1. Income statement - NI=R-E

2. Statement of Retained Earnings - BRE+-NI-Div

3. Balance Sheet - A= L+SE

4. Statement of Cash Flows - +- O +- I +- F

IS

R-E=NI

Income statement

Revenue-expenses= net income

(period of time)

SRE=BRE+- NI- Div=ERE

Beg. retained earnings +- net income- div. - end ret earnings

Statement of retained earnings

Period of time

SCF categories

Statement of Cash flows (period)

+- operating+- investing+- financing

Receivable is an…

Asset

Payable is a…

liability

1. GAAP

2. FASB

3. IFRS

1. Generally Accepted Accounting Principles

2. FInancial Accounting Standards Board

3. International Financial Reporting Standards

A/R

Accounts Receivable

Asset

amounts owed to business by customer for past business transactions

We focus on accounting from a

Corporate standpoint

Cost Principle

Assets are initially reported on the B/S on their original cost to the company

Separate entity assumption

Financial results of a business include the results of the business only