Accounting 225 Chapter 1

Revenues

Amounts recorded when the company sells a product or service

What are the two primary components of stockholders equity

1. Common Stock 2. Retained Earnings

What are the Four Primary Financial Statements

1. Income Statement 2. Statement of Stockholders Equity 3. Balance Sheet 4. Statement of Cash Flow

Two functions of financial accounting

1. To measure business activities of a company 2. Then communicate this measurements to external parties for decision making purposes

Corporation

A company that is legally separate from its owners. This gives stockholders limited liability

Income Statement

A financial statement that reports the company's revenues and expenses over an interval of time

Statement of Stockholders Equity

A financial statement that summarizes the changes in stockholders' equity over an interval of time.

Managerial Accounting

Accounting information that is provided to internal users (managers)

Dividends

Cash payments to stockholders

Heading

Includes the company's name, the title of the financial statement, and the time period covered by the financial statement

Investing Activities

Includes transactions involving the purchase and sale of resources that are expected to benefit the company for several years

Operating Activities

Includes transactions that that relate to the primary operations of the company like rent, salaries, utilities, taxes etc.

Financing Activities

Includes transactions the company has with investors and creditors

Retained Earnings

It is an internal source of the stockholders equity. It represents the cumulative amount of net income, earned over the life of the company, that has been kept (retained) in the business rather than distributed to stockholders as dividends (not retained).

Financial Statements

Periodic reports published by the company for the purpose of providing information to external users

Financial Accounting

Provided to external users

Common Stock

Represents the amounts invested by stockholders when they purchase shares of the stock. It is an external source of the stockholder's equity

Limited Liability

prevents stockholders from being held personally responsible for the financial obligations of the corporation