Studied by 0 people
Looks like no one added any tags here yet for you.
Partnership
- Owned by 2 or more people
- Simple to establish
- Shared control
- Broader skills & resources
- Tax advantages
- Personal Liability
Corporation
- Easy to transfer ownership
- Easy to raise capital (selling shares of stock)
- No personal liability (BIGGEST ADVANTAGE)
- Pay taxes twice (corporation & stockholders)
Accounting is the information system that ____________, ___________, and ________________ the economic events of an organization to interested users.
IDENTIFIES
RECORDS
COMMUNICATES
Internal Users
Managers, Supervisors, Company officials
External Users
Investors, Creditors, Regulators
Financial Scandal led to this Act
Sarbanes-Oxley Act in 2002 (SOX Act)
3 Types of Business Activites
1. Financing- raising money (or borrowing)
2. Investing (purchase of resources needed to operate)
3. Operating (Day to Day operations)
Amounts Owed
Liabilities
Payments to stockholders
Dividends
Assets
Resources owned by a business
Revenues
Amounts earned from the sale of products
- Sales revenue
- Service revenue
- Interest revenue
Inventory
Goods available for sale to customers
Accounts Recievable
Amounts owed from customers as the result of a sale
Expenses
Cost of assets consumed or services used
Net Loss
Revenues < Expenses
Income Statement
Revenues & Expenses for a SPECIFIC PERIOD OF TIME
Retained Earnings Statement
- Net income is needed to determine the ending balance in retained earnings
- Shows amounts and causes of change in retained earnings
- Time period is same as income statement
- Ending balance in retained earnings is needed in balance sheet
Statement of Cash Flows
Provide financial information about the cash receipts & cash payments of a business
- Reports cash effects of Operating, Investing, & Financing activities
INCOME STATEMENT ORDER
- Revenues
- Expenses
= Net Income
RETAINED EARNINGS STATEMENT ORDER
- Retained earnings from beginning of time period
- Add: Net Income
- Less: Dividends
= Retained earnings at end of time period
current assents
cash, short term investments, accrued revenue (service provided but no cash received) inventory, supplies, prepaid things
Long-term investments
Long-term assets not used in operating activities such as notes receivable and investments in stocks and bonds.
Property, Plant, and Equipment
Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business. (cost and accumulated depreciation)
intangable assets
assets without physical substance
- goodwill, patents, etc.
Current Liabilities
liabilities due within a short time, usually within a year (accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed)
long-term liabilities
obligations that a company expects to pay after one year (loans, deferred tax liabilities, and pension obligations)
Stockholders' Equity
common stock and retained earnings (owners claim to assets)
profitability
ability to provide financial rewards sufficient to attract and retain financing, measures operating success or income
Liquidity Ratios
Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
Current Ration Equation
current assets /
current liabilities
Working Capital
current assets - current liabilities
Solvency
Long term survivability. The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity.
debt to assets ratio
total liabilities/total assets
Free Cash Flow (FCF)
the amount of cash that could be withdrawn without harming a firm's ability to operate and to produce future cash flows
=sales revenue - (operating costs+tax) - required investments in operating capital
GAAP (Generally Accepted Accounting Principles)
The standards and rules that accountants follow while recording and reporting financial activities.
FASB (Financial Accounting Standards Board)
sets accounting standards in the U.S.
SEC (Securities and Exchange Commission)
Makes and Enforces rules for the stock market
IASB (International Accounting Standards Board)
the organization formed to develop worldwide accounting standards
Consistency
use of the same accounting principles and methods from year to year within a company
Verifiability
occurs when independent measurers, using the same methods, obtain similar results
Timeliness
Information is available prior to the decision
Understandability
Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning.
Transaction Analysis
the process of identifying the specific effects of economic events on the accounting equation
Accounting Equation
Assets = Liabilities + Stockholders' Equity
assets = (all current and long term debts + obligations) + (assets available to shareholders after all liability's)
Earnings Per Share (EPS)
(Net Income - Preferred Dividends) / average Shares Outstanding
Creditor's Claim to assents are
liability's
Cash received from customers in advance
increases liability's
Sole Proprietorship
- Generally owned by one person
- Simple to establish
- Owner controlled
- Tax advantages
- Personal Liability
Party to whom amounts are owed
Creditors
Liabilities
Arising from expenses
- Accounts Payable
- Interest Payable
- Wages Payable
- Sales Taxes Payable
- Income Taxes Payable
- Notes Payable
- Unearned Service Revenue
EVERYTHING PAYABLE AND UNEARNED SERVICE REVENUE
Net Income
Revenues - Expenses
Balance Sheet
Reports assets & claims to assets at a SPECIFIC POINT IN TIME
- Assets = Liabilities + Stockholder's Equity
- List assets first, then liabilities, then stockholder equity
Components of an Annual Report
- Financial Statements
- Management Discussion & Analysis (MD&A)
- Notes to the Financial Statements
- Independent Auditors report
BALANCE SHEET ORDER
- Assets
- Liabilities
- Stockholder Equity
Comparability
Ability to compare the accounting information of different companies because they use the same accounting principles.
Note 
Flashcard (106)