ACCT 2000- Exam 1 Lowe-Ardoin

Sole Proprietorship

- Generally owned by one person

- Simple to establish

- Owner controlled

- Tax advantages

- Personal Liability

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

Party to whom amounts are owed

Creditors

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

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

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

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

Statement of Cash Flows

Provide financial information about the cash receipts & cash payments of a business

- Reports cash effects of Operating, Investing, & Financing activities

Components of an Annual Report

- Financial Statements

- Management Discussion & Analysis (MD&A)

- Notes to the Financial Statements

- Independent Auditors report

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

BALANCE SHEET ORDER

- Assets

- Liabilities

- Stockholder Equity