ACCT 200 Lecture 1 Outline of Last Lecture I. Outline of syllabus and class rulesOutline of Current Lecture II. Forms of Business OrganizationIII. Users and Uses of Financial InformationIV. Business ActivitiesV. Communicating with UsersCurrent LectureChapter 1: Introduction to Financial StatementsForms of Business OrganizationSole Proprietorship: - Advantages: easy to establish, owner control, taxes- Disadvantages: Personal liability, hard to transfer ownershipPartnerships:- Advantages: easy to establish, shared control, more skills and resources, tax- Disadvantages: Personal liability, hard to transfer ownershipCorporations:- Advantages: easy to transfer ownership, raise/lowers legal liabilityUsers and Uses of Financial InformationInternal Users:- Marketing: What price should apply charge for an iPod to maximize the company’s net income?- Management: Which PepsiCo product line is the most profitable? Should any product lines be eliminated?- Finance: Is cash sufficient to pay dividents to Microsoft stockholders?- Human Resources: Can General Motors afford to give its employees pay raises this year?External Users:- Creditors: Will United Airlines be able to pay its debts as they come due?- Investors: Is General Electric earning satisfactory income?- Investors: How does Disney compare in size and profitability with Time Warner?These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Do It! Practice ExerciseIdentify each of the following organization characteristics with the form or forms with which it is associated1. Easier to transfer ownership (corporations)2. Easier to raise funds (corporations)3. More owner control (sole proprietorship)4. Tax advantages (partnership)5. No personal legal liability (corporations)Business ActivitiesAll business are involved in three types of activity-1. Financing = money to outside sources2. Investing= purchases needed to operate (assets)3. Operating= operations *Accounting information system keeps track of three major classes of activitiesFinancing ActivitiesTwo primary sources of outside funs are:1. Borrowing money (debt financing)a. Liabilities = money owedb. Creditors= who we owe money toc. Types of liabilities example: Notepay =N/P Bondpay=B/P2. Issuing (selling) shares of stock for casha. Dividends- money payments to stockInvesting ActivitiesPurchase of resources a company needs to operate.- PPE- Property, plant, and equipmento Ex. Buildings, land, computers, equipment- Assets- resources owned by a business to provide future income- Investments- another example of investing, in another companyOperating ActivitiesOnce a business has the assets it needs, it can begin its operations.- Revenues- from sales- Inventory- available for sale- Accounts receivable- right to get money payment from a customer- Expenses- costs of assets or service used- Liabilities- from expenses, promise to pay= obligation- Net income- revenue > expense- Net loss- expenses > revenueDo It! Practice ProblemClassify each item as an asset, liability, common stock, revenue, or expense1. Cost of renting property (expense)2. Truck purchased (asset)3. Notes payable (liability4. Issuance of ownership shares (common stock)5. Amount earned from providing service (revenue)6. Amounts owed to suppliers (liability)*Paper expense + accounts payable = liabilityCommunicating with UsersCompanies prepare four financial statements from the summarized accounting data:1. IS – income statements – revenue and expenses2. SORE – statements of returned earnings – RE, net income, dividend3. B/S – balance sheet – assets, liability, stockholders equity4. CF – statement of cash flowsReview- Accounts payable (liability, b/s)- Accounts receivable (asset, b/s)- Bond payable (liability, b/s)- Cash (asset, b/s)- Common stock (SE, b/s)- Delivery expense (exp, i/s)- Dividends (Se, SORE)- Equiptment (asset, b/s)- Income tax expense (exp, i/s)- Insurance expense (exp, i/s)- Interest expense (exp, i/s)- Interest payable (liab, b/s)- Maintenance expense (exp, i/s)- Maintenance payable (liab, b/s)- Office expense (liab, i/s)- Prepaid insurance (asset, b/s)- Rent expense (exp, i/s)- Retained earnings (SE, SORE/b/s)- Revenues (rev, i/s)- Supplies expense (exp, i/s)- Supplies on hand (asset, i/s- Wages expense (exp, i/s)Income Statement- Time- revenue plus expenses for a period of time- Net income- rev > exp- Net loss- exp >rev- Future- use for bugetsSteps to figure out income statement and retained earnings statement1. Income statement- put in revenue and expenses and get income2. SORE- net imcome is the ending not earnings3. Balance sheet- assets, liability, stockholders equitya. Assets= liability + stock*Net income is needed to determine the end retained earningsRetained Earnings Statement- Statement shows changes to RE- Time is the same as income statement- Users can evaluate the dividend*Ending balance in retained earnings is needed for balance sheetBalance Sheet- Reports A, L, SE at a certain point in time (assets, liability, stockholders equity)- Equation- A=L + SE- Order: A, L, SE*Cash on balance sheet will match ending cash on the statements of cash flow (IS, SORE, B/S, CF)Statement of Cash Flows- Negative numbers are shown in parenthesisReview of Financial Statement Relationships1. GKG Co1: 2. GKG Co2 3. GKG Co3Liab: 90,000 Assets: 150,000 Cash: 10,000SE: 230,000 Liab: 70, 000 Inv: 10,000Assets: ? SE: ? A/R: 25,000A/P: 30,000CS: 10,000RE: ?1. A=L + SE 2. A=L+SE 3. A=L+SE(CS, RE)A= 90k +230K 150k+70k+SE (10k+10k+25k)=30k+ (10k +x)A= 320,000 SE=80,000 45k=30k+(10k + x)15k=10k+xx=5,000Income statement: Rev-Exp=NIStatement of retained earnings: Beg RE + NI – Div = End REBalance sheet: A= L + SE (CS, RE)^Rev = ^NI = ^ ERE = ^