Accounting basics

Sole proprietorship

A business owned by one person

Partnership

A business owned by two or more people associated as partners

Corporation

A separate legal entity owned by stockholders

Internal users

Managers who need accounting information to plan

External users

Investors and creditors who use accounting information for decision-making

Investors (stockholders)

Use accounting information to decide whether to buy

Creditors (suppliers

bankers)

Ethics in Financial Reporting

The moral principles guiding the preparation and presentation of financial statements

Financing activities

Collecting funds to support the business

Investing activities

Acquiring resources to run the business

Operating activities

Using resources to generate profit

Income statement

Reports revenues

Retained earnings statement

Summarizes changes in retained earnings caused by net income and dividends for a period

Balance sheet

Reports assets

Statement of cash flows

Summarizes cash receipts (inflows) and payments (outflows) during a period

Assets

Resources owned by a business

Liabilities

Debts and obligations owed to creditors

Stockholders equity

Owners’ claims on the business assets

Assets = Liabilities + Stockholders Equity

Equation representing assets equal liabilities plus stockholders equity

Management discussion and analysis (MDA)

Management's interpretation of financial position

Notes to financial statements

Additional explanation and details to make financial statements more informative

Auditors report

Independent auditor’s opinion on fairness and conformity of financial statements with accounting principles