Elementary Accounting CH 1

Assets

Every resource/thing the company owns

Assets

Cash, supplies, machinery, furniture, & buildings

Accounts Receivable

The right to receive cash payments from customers for food/services already provided

liabilities

The things the company owes the others (money or services)

Liabilities

• Salaries payable to employees

• Income tax payable to the IRS

• Loan payable to the bank

• Utility bill to PG&E

• Rent owed to landlord

Equity

2 main components: Common stock & Retained Earnings

Common stock (equity)

Measures the cash contributed by stockholders of a company when they purchase ownership shares in the company.

Retained Earnings (equity)

Measurer of the income that is earned by the company, reinvested in that business, and not distributed to its shareholders.

• Increases when the company produces net income & decrease if the company has net loss

Accounting Equation

Asset = Liabilities + Stockholders Equity

• Must always be balanced, cannot be a time where the equation does not work.

Revenues

The amount recognized when the company sells products or provide services to customers.

Expenses

The costs of providing products & services & other business actives during the current period.

Net income

Difference between revenues & expenses

• Revenue - expense = net income

Dividends

Cash payment to stockholders not expenses

Financial Statement

Periodic reports published by the company’s business activities to those outside of the company.

Primary Financial Statement

Report the company’s revenues & equity over an interval of time:

• If revenues > expenses → Net income

• If revenues < expenses → Net loss

Statement of stockholder’s equity

Summarizes the changes in stockholders’ equity over an interval of time

• stockholders’ equity = Common Stock + Retained Earnings

Only thing that increases retained earnings is

Balance Sheet

Presents the financial position of the company on a particular date

• Resources (assets) = claims to rescores (Liabilities + Stockholders Equity)

Statement of Cash Flows

Measures activity involving cash receipts & cash payments over an interval of time

• 3 different categories: Operating, Investing, Financing

Operating Cash Flows

Cash transaction involving revenue & expenses activities

Investing Cash Flows

Cash transaction for the purchase & scale of investments & long-term assets (land, furniture, buildings)

Financing Cash Flows

Cash transactions with lenders & stockholders. Cash received/spent on funding the operations.

Ending cash balance in statement of cash flows

• Revenue (from that 1 year) - Expenses (from that 1 year) = Net income

GAAP

A set of uniform rules companies have to follow so investors & creditors can make their decisions on the company

Annual Reports

SEC requires all companies with publicly listed securities to file an annual report at the end of each fiscal year.

Auditors

Trained individuals hired by a company as an independent party to express a professional option of the extend to which financial statements are prepared in complies with GAAP free of material misstatements.