Chapter 1 Terms

Sole Proprietorship

Sole Proprietorship

A business owned by one person.

Partnership

A business owned by two or more persons associated as partners.

Corporation

A business organized as a separate legal entity owned by stockholders.

why is it easier for corporations to raise funds

because they can sell stocks

hybrid business forms

limited liability company (LLC)

suchapter S corporations

Financial information

It provides input for decision-making

Accounting

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Internal users

managers who plan, organize and run a business

External users

• Investors

• Creditors

• Customers

• Regulatory agencies

Data analytics

The evaluation of data, often employing both software and statistics, to draw inferences.

Types of data analytics

• Descriptive

• Diagnostic

• Predictive

• Prescriptive

Descriptive

what happened

diagnostic

why did it happen

Predictive

what’s likely to happen

Prescriptive

What should we do about it

Sarbanes-Oxley Act (SOX)

Regulations passed by Congress to reduce unethical corporate behavior.

Accounting information system

It keeps track of the results of each business activity.

Financing activities

Involves raising money from outside sources.

Liabilities

Amounts owed to creditors in the form of debts and other obligations.

Notes payable

Liabilities that come from a bank or financial institution.

Bonds payable

Debt securities sold to investors that must be repaid.

Common stock

Term used to describe the total amount paid in by stockholders for the shares they purchase.

Dividends

Payments of cash from a corporation to its stockholders.

Investing activities

They involve the purchase of the resources a companyneeds to operate

Assets

Resources owned by a business.

Fixed asset (PPE)

Items that a company plans to use long-term to generate income

Operating activities

The daily actions taken bya company to produce and sell a product, or provide a service.

Revenue

The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business.

Expenses

The cost of assets consumed or services used in the process of generating revenues.

Accounts payable

Obligation topay for goods obtained on credit from suppliers.

Revenue exceeds expenses

net income

expenses exceed revenue

net loss

Income statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

Retained earnings statement

A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period.

Retained earnings

The amount of net income retained in the corporation.

Statement of cash flows

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

Balance sheet

A financial statement that reports the assets and claims to those assets at a specific point in time.

Annual report

A report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and an independent auditor's report.

Management discussion and analysis (MD&A)

A section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.

The annual report includes

• Management discussion and analysis (MD&A)

• Auditor’s report

• Notes to the financial statements

Notes to the financial statements

Notes that clarify information presented in the financial statements and provide additional detail.

Auditor's report

A report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.

Taxation

An area of public accounting involving tax advice, tax planning, preparing tax returns, and representing clients before governmental agencies.

Stockholders' equity

The owners' claim to assets.

Management consulting

An area of public accounting ranging from development of accounting and computer systems to support services for marketing projects and merger and acquisition activities.

Forensic accounting

An area of accounting that uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud.

Auditing

The examination of financial statements by a certified public accountant in order ro express an opinion as to the fairness of presentation.