BUS 241 Video 1

Introduction to Accounting

Definition of a Business: An organization that utilizes resources to provide goods or services to customers, who in turn pay for them.
Profit: The difference between what customers pay and the input costs incurred to generate goods/services. The primary goal of most businesses is to earn a profit.

Provide services in exchange for a fee.
Example: Delta Airlines (transportation services), Walt Disney Company (entertainment).
Class Example: A lawn mowing service that charges customers for cutting grass.

Purchase inventory and sell it at a higher price.
Example: Walmart, which sells various goods purchased at wholesale prices, aiming for gross profit.

Convert raw materials into finished goods through an assembly process.
Example: Ford Motor Company combines various materials (aluminum, steel, upholstery) to create vehicles.

Purpose of Accountants: Provide economic information about a business to users.
Types of Users:
- Internal Users: Individuals within the organization using the information (e.g., management).
- External Users: Individuals outside the organization relying on this information (e.g., investors, creditors).

Provides information exclusively for internal users.
No fixed rules compared to financial accounting; reports cater to management's specific needs.

Supplies information to external users through financial statements, adhering to Generally Accepted Accounting Principles (GAAP).
Governed by the Financial Accounting Standards Board (FASB), which establishes GAAP.

Securities and Exchange Commission (SEC): Sets rules for publicly traded companies on major stock exchanges (e.g., Disney, Ford, Microsoft).
International Accounting Standards Board (IASB): Establishes guidelines for international accounting practices.

Definition: Distinction between personal and business finances; individuals must keep personal expenses separate from business records.
Types of Business Entities:
1. Proprietorship: Owned by one person, example includes the lawn mowing business.
2. Partnership: Owned by two or more individuals; retains pass-through taxation benefits.
3. Corporation: More complex, requires legal assistance to form, and has limited liability.
4. Limited Liability Company (LLC): Combines aspects of partnerships and corporations, offering limited liability and pass-through taxation.

Advantages: Limited liability protection.
Disadvantages: Complex to form and operates with double taxation (corporate level and personal level for dividends).

Advantages: Combines limited liability with tax benefits of proprietorships and partnerships.
Disadvantages: Subject to regulations concerning the number of members and revenue.

States that assets should be recorded at their actual purchase price.
Example: If a business purchased property for $150,000, that is the recorded asset cost.

Defined as economic events influencing a business's financial situation.
Examples: Earning from a service (e.g., mowing a lawn) or buying gas for business use.

Reports revenues and expenses to show net income or net loss based on matching concept.
Outcome: Revenues > Expenses = Net Income; Expenses > Revenues = Net Loss.

Tracks changes in owner's equity over a period, factoring in net income and withdrawals.
Ends with a calculation of ending capital based on various equity changes.

Acknowledged as one of the main financial statements but will be detailed in further study.

Net Solutions Income Statement: Revenue of $7,500, expenses of $4,450, resulting in a net income of $3,050.
Statement of Owner's Equity Example: Starting equity of $25,000, plus net income resulting in capital, minus owner's withdrawals leading to final capital calculation.
Balance Sheet Example: Ends with total assets aligning with liabilities and owner's equity, confirming balance in financial records.