ACC 255 CHP 1 Review and HW

Assets

The resources of a company.

Liabilities

Amounts owed to creditors.

Stockholders’ Equity

Represents the owners’ claims to resources from contributions and net income.

Revenues

Amounts recognized when the company sells products or provides services.

Expenses

Costs of providing products and services during the current period.

Net Income

The difference between revenues and expenses.

Dividends

CASH payments to stockholders, not considered an expense.

Corporation

A company that is legally separate from its owners.

Sole proprietorship

A business owned by a single individual responsible for all debts.

Partnership

A business owned by two or more persons sharing ownership and liabilities.

Financial Statements

Periodic reports providing information to external users about the company.

Common Stock

Represents amounts invested by stockholders when they purchase shares.

Retained Earnings

All net income minus all dividends over the company's life.

The Accounting Equation

A company’s assets equal its liabilities plus stockholders’ equity.

Net Income Equation

Revenues (R) - Expenses (E) = Net Income (NI).

Stockholders’ Equity Equation

Stockholders’ Equity = Common Stock + Retained Earnings.

Common Stock Calculation

Beginning Common Stock + New Issuances = Ending Common Stock.

Retained Earnings Calculation

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings.

Change in Cash Equation

Change in cash = Operating cash flows + Investing cash flows + Financing cash flows.

The Income Statement

A financial statement that reports the company’s revenues and expenses.

Statement of Stockholders’ Equity

Summarizes changes in stockholders’ equity over time.

Balance Sheet

Presents the financial position of the company on a specific date.

Statement of Cash Flows

Measures cash receipts and payments over an interval of time.

Operating Cash Flows

Cash flows derived from core business operations.

Investing Cash Flows

Cash transactions for the purchase and sale of physical and financial investments.

Financing Cash Flows

Cash transactions related to debt and equity financing.

Double Taxation

Corporation pays corporate taxes before stockholders pay personal taxes.

Limited Liability Company (LLC)

Hybrid structure offering liability protection and pass-through taxation.

Limited Liability Partnership (LLP)

Partnership providing liability protection for each partner.

Sale of products or services

Revenue.

Owners' claims to resources

Stockholders' equity.

Distribution to stockholders

Dividends.

Costs of selling products or services

Expenses.

Resources of a company

Assets.

Creditors' claims to resources

Liabilities.

Rent Expense

Cost related to renting space.

Interest Revenue

Earnings from interest on savings.

Common Stock Calculation - Example

Shares sold to investors for investment.

Change in Retained Earnings

From net income and dividends reflects in the statement of stockholders’ equity.