accounting chapter #1

inventory

- Goods available for sale to customers.

Net income

- when revenues exceed expenses.

debt financing

1)Borrowing money (debt financing) -Amounts owed are called liabilities. -Party to whom amounts are owed are creditors. -Notes payable and bonds payable are 2 examples of different types of liabilities.

Two primary sources of outside funds are:

1)Borrowing money (debt financing) -Amounts owed are called liabilities. -Party to whom amounts are owed are creditors. -Notes payable and bonds payable are 2 examples of different types of liabilities. 2)Issuing (selling) shares of stock for cash. Common stock is the term used to describe the amount paid by stockholders (to the company) for shares they purchase. Payments to stockholders are called dividends.

U.S. companies that are publicly traded must provide shareholders with an annual report. The annual report always includes: four things

1)Financial statements. 2)Management discussion and analysis. 3)Notes to the financial statements. 4)Auditor's report.

equity finacing

2)Issuing (selling) shares of stock for cash. Common stock is the term used to describe the amount paid by stockholders (to the company) for shares they purchase. Payments to stockholders are called dividends.

revenue

Amounts earned from the sale of products (sales revenue, service revenue, and interest revenue).

Auditor's Report

Auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.

Notes to the Financial Statements

Clarify the financial statements. Provide additional detail. Notes are essential to understanding a company's operating performance and financial position

All businesses are involved in three types of activity —

Financing: getting outside money Investing: purchases (assets) needed to operate Operating: actual business operations

balance sheet

Reports assets and claims to assets at a specific point in time. Assets = Liabilities + Stockholders' Equity. Lists assets first, followed by liabilities and stockholders' equity

Balance Sheet

Reports assets and claims to assets at a specific point in time. Lists assets first, followed by liabilities and stockholders' equity. Assets = Liabilities + Stockholders' Equity.

income statement

Reports revenues and expenses for a specific period of time. Net income - revenues exceed expenses. Net loss - expenses exceed revenues. Past net income provides information for predicting future net income.

accounts receivable

Right to receive money from a customer as the result of a sale.

retained earnings statement

Statement shows amounts and causes of changes in retained earnings during the period. Time period is the same as that covered by the income statement. Users can evaluate dividend payment practices.

Statement of Cash Flows

Where did cash come from during the period? How was cash used during the period? What was the change in the cash balance during the period?

Liabilities

arising from expenses include accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable.

Expenses

cost of assets consumed or services used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense

Management discussion and analysis (MD&A)

covers the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations. Management must highlight favorable or unfavorable trends and identify significant events and uncertainties that affect these three factors.

The accounting information system

keeps track of the results of financing, investing, operating

Net income is needed to determine (taken from income statemment)

the ending balance in retained earnings.

Net loss

when expenses exceed revenues.