ACC CHP 1

Sole Proprietorship

A business owned by one person
- no legal maneuvers
-considered part of owner's life- all profits/losses are taxable to the owner

partnership

profits taxes and legal liability are the responsibility of two or more owners
- legal help needed to draw up partnership agreement

corporation

a separate legal entity from legal and accounting perspectives
-the corporation (not the owners) are legally responsible for its own taxes and debts
- owners cannot lose more than their investment in the corportion
- divides ownership into shares

accounting

A system of analyzing, recording, and summarizing the results of a business's operating, investing, and financing activities and then reporting them to decision makers

Managerial Accounting Reports

include detailed financial plans and continually updated reports about the operating performance of the company
-shared with employees

financial statements

Financial reports that summarize the financial condition and operations of a business
- given to nonemployees

separate entity assumption

the financial reports of a business are assumed to include the results of only that business's activities—not the personal dealings of stockholders

asset

a resource the company controls and expects to benefit from in the future

liabilities

measurable amount the company expects to give up in the future to settle what it presently owes to its creditors

stockholder's equity

represents the owners' claims on assets of the business after creditors' claims have been fulfilled

common stock

equity paid in by stockholders

retained earnings

equity earned by the company

dividends

an optional distribution of earnings to stockholders
-reported as a reduction to retained earnings

income statement

A financial statement showing the revenue and expenses for a fiscal period.

revenues - expenses = net income

unit of measure assumption

The financial results of a company's worldwide business activities should be measured and reported using a single monetary unit, such as the U.S. dollar

Statement of Retained Earnings

Reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period.

Beginning RE + Net Income - Dividends = Ending RE

balance sheet

Reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time.
presented for a point in time (ex. at Sept 20, 2022)

Cost principle assumption

1) also called historical cost
2) states that acquired assets and services should be recorded at their actual cost.

statement of cash flows

Reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing

(CASH FLOWS:) Operating

arise directly from running the business to earn profit- include cash received from selling products/services and cash paid for paying wages, advertising, rent, supplies, etc.

(CASH FLOWS:) Investing

arise from buying and selling productive resouces with long lives (buildings, land, equipment), purchasing investments and lending to others

(CASH FLOWS:) Financing

include borrowing from banks, repaying bank loans, receiving cash from stockholders for company stock or paying dividends to stockholders

GAAP (Generally Accepted Accounting Principles)

The rules used in the United States to calculate and report information in the financial statements