ACCTNG 2400 1st Edition Lecture 2Outline of Last Lecture I. Types of businessesII. Business relationshipsIII. Vocab/TerminologyOutline of Current Lecture I. What questions to ask before investinga. Financial healthb. Financial performanceII. Basic Accounting EquationIII. Different Creditors, investors, and external usersCurrent LectureI. What questions to ask before investingA. Financial health- What does the business own?- Make sure they have reasonable “assets”- Resources, owned by the company, that have future value- 3 types: Cash, “stuff” or “rights”- Is there enough cash to pay the bills?- Make sure the company isn’t in debt- What does the business owe to others?- Make sure you would get your money from them and you are not at the end of a long line of other inverstorsB. Financial Performance- How much has the company made from its recent business activities (buying and selling things)?- Is the company successful? Have they been successful in the past?II. Basic Accounting EquationThese 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.ASSETS(resources owned by the company) – LIABILITIES (resources owed to the creditors)= EQUITY (Resources owes to stockholders)Usually expressed: ASSETS = LIABILITIES + EQUITY Financial statements always balance out this equationIII. Different Types of Creditors(Creditor is anyone whom money is owed), investors, and other external users1. Creditorsa. Banks – use financial statements to evaluate whether or not they will be repaid the money they loan to the companyb. Suppliers – check business’s credit standings and financial statements to make sure they will be repaid2. Investorsa. Stockholders – rely on financial statements to make sure the company is secure and profitable3. Other External Usersa. Customers – may use financial statements to judge company ability to provide service on its productsb. Governments – local, state, and federal collect taxes based on info used to prepare the financial
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