Accounting chapter 1

Accounting

system of analyzing, recording, and summarizing the financial results of a business to decision makers

What is the objective of financial accounting?

To provide information to external decision makers

Which decision makers are the key audience?

External decision makers

ex. of external decision makers

stockholders, IRS, SEC, board of directors

4 financial statements

balance sheet, income statement, statement of retained earnings, statement of cash flows

what does the balance sheet do?

reports financial position of a company at a point in time

what is another name for the balance sheet?

statement of financial position

what is separate from a business and owners?

assets

balance sheet equation

assets = liabilities + stockholders equity

stockholders equity 2 separate parts

cultivated capital and retained earnings

statement of retained earnings definition

shows sum of all passed earnings not distributed as dividends

what does the statement of retained earnings do?

reports how net income and distribution of dividends affects the financials of the company for this accounting period

dividends are not a what?

expense

statement of retained earnings equation

BRE + NI - D = ERE

BRE in year 1 = what?

0

Income statement does what?

reports revenues less expenses for accounting period

other names for income statement

statement of income, statement of earnings, statement of operations

Income statement equation

NI = R - E