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ACC 201 Chapter 1

Terms in this set (75)

Forms of Business Organization
sole proprietorship, partnership, corporation
Sole Proprietorship
simple to establish, owner controlled, tax advantages
Partnership
simple to establish, shared control, broader skills and resources, tax advantages
Corporation
easier to transfer ownership, easier to raise funds, no personal liability
Internal Users
marketing, management, finance, human resources
Marketing
What price should the company charge its products?
Management
Which product line is more profitable? Should any product be eliminated?
finance
Is cash sufficient to pay dividends?
human resources
Can the company afford to give its employees a raise?
External Users
investors and creditors
Investors
Is the company earning satisfactory income? How does the company compare in size and profitability to another company?
Creditors
Will the company be able to pay its debt when they come due?
principal types of business activities
financing, investing and operating
Financing Activities
1. Borrowing Money (Debt)
2. Issuing (selling) shares of stock for cash
borrowing money
amounts owed, party to whom amounts are owed, ex: notes payable, bonds payable. Always a liability
Amounts owed are called
liabilities
Creditors
party to whom amounts are owed
Issuing (selling) shares of stock for cash
payments to stockholders are called dividends, common stock
Common Stock
issued to investors who purchase shares of stock from the company.
Dividends
payments to stockholders
Investing Activities
Purchase of resources a company needs to operate. Also includes sales of these assets.
Assets
resources owned by a business
Investing Examples
purchasing computers, delivery trucks, furniture, buildings (PPE). Purchasing stock of another company. Purchasing another company.
Operating Activities
revenues, inventory, accounts receivable. expenses, liabilities, net income, net loss
Revenues
Amounts earned from selling products or services to customers.
inventory
goods available for sale to customers
Accounts Receivable
right to receive money from a customer as the result of a sale
Expenses
cost of assets consumed or services used
liabilities amounts owed
include accounts payable, interest payable, wages payable, sales taxes payable and income taxes payable
Net Income
when revenues exceed expenses
net loss
when expenses exceed revenues
Financial statements in order
1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows
Income Statement, retained earnings, cash flow
company name, name of statement, for the month ended
Balance sheet
company name, name of statement, ending date
Partnership
shared control and increased skills and resources
-sole proprietorship
-partnership
-corporation
Sole Proprietorship
simple to set up and maintains control with owner
-sole proprietorship
-partnership
-corporation
corporation
easier to raise funds
-sole proprietorship
-partnership
-corporation
Corporation
easier to transfer ownership
-sole proprietorship
-partnership
-corporation
Sole Proprietorship and Partnership
tax advantages
-sole proprietorship
-partnership
-corporation
Corporation
no personal legal liability
-sole proprietorship
-partnership
-corporation
Corporation
easier to transfer ownership
-sole proprietorship
-partnership
-corporation
Internal Revenue Service
Trying to determine whether the company complied with tax laws
-Investors in common stock
-Marketing Managers
--Creditors
-Chief Financial Officer
-Internal Revenue Service
marketing manager
trying to determine whether an advertising proposal will be cost-effective
-Investors in common stock
-Marketing Managers
--Creditors
-Chief Financial Officer
-Internal Revenue Service
Creditors
Trying to determine whether the company can pay its obligations
-Investors in common stock
-Marketing Managers
--Creditors
-Chief Financial Officer
-Internal Revenue Service
Investors in common stock
Trying to determine whether the company's net income will result in a stock price increase
-Investors in common stock
-Marketing Managers
--Creditors
-Chief Financial Officer
-Internal Revenue Service
Chief Financial Officer
Trying to determine whether the company should employ debt or equity financing
-Investors in common stock
-Marketing Managers
--Creditors
-Chief Financial Officer
-Internal Revenue Service
all of the above are required
Which is not required in an annual report of a publicly traded company?
1. statement of cash flow
2. notes to the financial statements
3. management discussion and analysis
4. all of the above are required
MD&A
Description of the ability to pay near term obligations
-MD&A
-Notes to FS
-Auditors report
Auditor's Report
Unqualified opinion
-MD&A
-Notes to FS
-Auditors report
Notes to FS
Details concerning liabilities, too voluminous to be included in the statements
-MD&A
-Notes to FS
-Auditors report
MD&A
Description of favorable and unfavorable trends
-MD&A
-Notes to FS
-Auditors report
Auditor's Report
certified public accountant (CPA)
-MD&A
-Notes to FS
-Auditors report
Notes to FS
Descriptions of significant accounting policies
-MD&A
-Notes to FS
-Auditors report
8. Auditors Report
An expression about whether financial statements conform with generally accepted accounting principles.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
1. Corporation
a business that raises money by issuing shares of a stock
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
6. common stock
the portion of stockholders equity that results from receiving cash from investors.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
7. accounts payable
obligations to suppliers of goods.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
3. Accounts receivable
amounts due from customers.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
2. creditors
a party to whom a business owes money.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
5. stockholder
a party that invests in common stock.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
4. Partnership
a business that is owned jointly by two or more individuals but does not issue stock.
1. Corporation
2. Creditor
3.Accounts Receivable
4. Partnership
5. Stockholder
6. common stock
7. accounts payable
8. auditors report
Common stock
issuance of ownership
-asset
-liability
-common stock
-revenue
-expense
asset
land purchased
-asset
-liability
-common stock
-revenue
-expense
liability
amounts owed to suppliers
-asset
-liability
-common stock
-revenue
-expense
liability
bonds payable
-asset
-liability
-common stock
-revenue
-expense
revenue
amount earned from selling a product
-asset
-liability
-common stock
-revenue
-expense
expense
cost of advertising
-asset
-liability
-common stock
-revenue
-expense
financing activity
issuance of ownership shares
-investing activity
-financing activity
-operating activity
investing activity
land purchased
-investing activity
-financing activity
-operating activity
Operating Activity
amounts owed to suppliers
-investing activity
-financing activity
-operating activity
Financing Activity
bonds payable
-investing activity
-financing activity
-operating activity
Operating Activity
amount earned from selling a product
-investing activity
-financing activity
-operating activity
Operating Activity
Cost of Advertising
-investing activity
-financing activity
-operating activity
Financing Activity
borrowing money from the bank
-investing activity
-financing activity
-operating activity
investing activity
purchasing shares of common stock
-investing activity
-financing activity
-operating activity
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