Key Concepts of Business Activities

Definition: All businesses engage in three main types of activities that are essential to their operations: financing, investing, and operating.

Purpose: To obtain outside funds needed for business operations.
- Sources of Financing:
- Debt Financing:
  - Involves borrowing money.
  - Liabilities are amounts owed (e.g., loans).
  - Types of Liabilities:
  - Notes Payable: Monies borrowed from banks or lending institutions.
  - Bonds Payable: Debt securities sold to investors.
- Equity Financing:
  - Involves issuing (selling) shares of stock for cash.
  - Common Terminology:
  - Common Stock: Represents the amount paid by stockholders for shares.
  - Dividends: Payments made to stockholders.

Purpose: To acquire resources necessary for company operations.
- Assets: Resources owned by a business, such as:
- Computers
- Delivery trucks
- Furniture
- Buildings
- Cash
- Property, Plant, and Equipment: Type of asset invested in to produce goods.
- Investments: Includes securities, such as stocks or bonds of other corporations.

Purpose: Relates to the day-to-day functions of a business after securing necessary assets.
- Revenue:
- Definition: Increase in assets or decrease in liabilities from selling goods or performing services.
- Common Sources:
  - Sales Revenue
  - Service Revenue
  - Interest Revenue
- Assets in Operations:
- Supplies: Assets used in daily operations (not sold to customers).
- Inventory: Goods available for sale.
- Accounts Receivable: Right to collect money in the future from customers.
- Expenses: Costs incurred from consuming assets or utilizing services such as:
- Cost of goods sold
- Selling expenses
- Administrative expenses
- Interest expenses
- Income taxes
- Liabilities from Expenses: Includes accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable.
- Net Income: Occurs when revenues exceed expenses.
- Net Loss: Happens when expenses exceed revenues.