Financial Accounting Chapter 1: Business Decisions and Financial Accounting

resources owed......to creditors

Liabilities

liabilities equation

Liabilities = Assets - Owner's Equity

how often are financial reports conducted?

Monthly, every 3 months (quarterly reports), and at the end of the year(annual reports)

creditors

People who lend money

Most corporations start off as ___________________, then later on apply to be _________________

Private companies, public companies

What is the net income formula?

Revenue - Expenses = Net Income

Net Income (profit)

Revenues - Expenses

The separation between stockholder and business is called.....

Separate Entity Assumption

Partnership

Similar to sole proprietorship, except profits ,taxes and legal liabilities are split between 2 or more owners

Earned Capital (Retained Earnings)

The owners have a claim on profits the company has earned for them through its business operations (Retained Earnings)

Paid-in capital (common stock)

The owners have claim on amounts they contributed directly to the company in exchange for its stock (common stock)

Statement of Retained Earnings

The statement that summarizes the income earned and dividends paid over the life of a business

Security and Exchange Commission (SEC)

U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception theyre basicall responsible for the function of the stock market

sole proprietorship

a business owned and managed by a single individual

central concept to understand financial reports

a company owns must equal what a company owes to its creditors and stockholders

ASSESTS= LIABILITIES + OWNERS EQUITY

accounting equation

public accountant

an accountant who provides accounting services to individuals or businesses on a fee basis

private accountant

an accountant who works for a single firm, government agency, or nonprofit organization

what is accounting?

an information system designed by an organization to analyze,record, and summarize the activities affecting its financial conditions and performance

Liabilities = __________ - Owner's Equity

assets

resources owned...... by company?

assets

director is short for

board of directors

Liabilities

claims on items (or assets) by creditors

equity paid in by stockholders

common stock

Managerial Accounting Reports

detailed financial plans and continually updated reports about the operating performance of the company

Stockholders

equals equity

Investors

existing and potential stockholders

Financial accounting reports are for what types of users?

external users

Internal Revenue Service (IRS)

federal agency responsible for collecting income taxes they're job is to use financial statements info to ensure taxes are computed using correct amounts

Financial accounting reports or....

financial statements

why would a private company need to go public?

if they need a lot of financing, which they obtain from issuing new stock certificates to investors.

revenue

incoming money

Managerial accounting reports are for what type of users?

internal users

Limited Liability Company (LLC)

is a type of organizational within business, which combines characteristics of a partnerships and a corporation

what business organizational form needs a lawyer to draw up a partnership agreement of profits, liabilities, and incoming members?

partnership

Dividends

payments of cash from a corporation to its stockholders Company's share profits to the shareholders based on the corporation's performance

Financial Statements are prepared for ......

people not employed in the bussiness (external users)

Managerial Accounting Reports are used for making what business decisions related to......

production Marketing Human resources Fianance

Balance Sheet

reports the amount of assets, liabilities, and stockholders' equity of an accounting entity of an accounting entity at a point in time

Stockholders' Equity

represents the owners' claims on the business

equity earned by the company

retained earnings

what business organizational form can be personally taxed by the owner, meaning they'll receive all profits?

sole proprietorship

what business organizational form is personally liable for all debts of the business?

sole proprietorship

What are the three organizational forms in accounting?

sole proprietorship, partnership, and corporation

Seperate Entity Assumption

states that a business's activities are accounted for separately from those of its owners. in other words...... a business's financial reports include only the activaties of the business and not of the personal dealing of its stockholders

Unit of Measure Assumption

states that accounting information should be measured and reported in the national monetary unit

resources owed......to stockholders

stockholders equity

who are creditors?

suppliers, banks, and anyone whom money is owed

Expenses

the costs of operating a business

who appoint directors into a company?

the stockholders of public companies or large private companies elect directors to over see the company's manager

what are directors role in a company?

to use financial statements to ensure the company's managers make decisions that are in the best financial interest of its stock holders,that is why stockholders appoint directors in their position

noodle cake studios,inc. Income statement (projected) for the month ended september 30, 2018

top 3 lines of income statement

noodle cake studios,inc. Statements of Retained Earnings (projected) for the month ended September 30, 2018

top 3 lines of statement of retained earrings

Assets

what a company owns

what are some examples of Managerial Accounting Reports being used for making business decisions

whether to buy,build, rent a building whether to discontinue particular items or not how much to pay employee how much to borrow

Top 3 lines of financial statements

who:Name of business what:Title of the statement When:Accounting period

stockholders equity equation

Assets - Liabilities = Stockholders' Equity

Balance Sheet Equation

Assets = Liabilities + Stockholders' Equity

Statement of Retained Earnings Equation

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

What is the key advantage of a partnership over a sole proprietorship?

By having more owners, a partnership has more resources,and more business growth

Sole Proprietorship

Easiest form of business b/c it doesn't require any special legal maneuvers.

banks (creditors) use _______________ statements to evaluate risk that the company will not repay the money they've loaned

Financial staements

Statement of Cash Flows

Financial statement that reports cash receipts and disbursements related to a firm's three major activities: operations, investments, and financing.

What are cash flows from operating activities?

Includes the cash effects of transactions involved in calculating net income. cash received from customers cash paid to employees and suppliers cash provided by operating activities

Name government agencies that are considered external users

Internal Revenue Service (IRS) Security and Exchange Commission (SEC)

_______________________ look into financial accounting statements to asses financial strength of a business and, whether to invest or not

Investors or stock holders

What are cash flows from financing activities?

Involves items classified as liabilities and equity in the Balance Sheet; it includes the payment of dividends as well as issuing payment of debt or equity. cash received fro

ASSESTS= ______________+ OWNERS EQUITY

Liabilities

Stockholders' Equity = Assets - _______________

Liabilities

The four main groups of external users......

1.Creditors 2.investors 3.directors 4.Government

Two disadvantages about corporations ?

1.Legal fees for creating a corporation can be expensive 2.incomes taxes have to be paid twice,by corporation and its owners (stock holders)

how can a company's calendar be chosen?

1.a regular calendar (last day of calendar is dec 31) or 2.fiscal year (any 12 month period where the end of the year is not dec 31)

financial statement refer to four reports.....prepared in what order.....

1.income statement 2.Statement of retained Earnings 3.Balance sheet 4.Statement of cash flows

In what order are financial statements prepared

1.income statement 2.Statement of retained earnings 3.Balance sheet 4.Statement of cash flow

2 types of stockholders equity

1.paid in capital or common stock 2.Earned capital or retained earnings

A corporation is separate entity legally responsible for?

A corporation is legally responsible for its own taxes and debts.

balance sheet(statement of financial position)

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

What are cash flows from investing activities?

Cash from non-operating activities or activities outside the normal scope of business. This involves items classified as assets in the Balance Sheet and includes the purchase and sale of equipment and investments.