ACCT 23020 Introduction to Financial Accounting Chapter 1 Difference between financial and managerial accounting Financial Designed to give information to external users Managerial Systems provided to managers of a business in decision making Forms of Business Proprietorship o 1 owner o Unlimited liability No separation of liability can go after personal work assets What forms of business limit risk to what has been invested Corporations and limited liability companies and limited liability partnerships What form of business has the most freedom to do as one wishes What form of business gives creditors the maximum amount of protection if a company fails Partnership o 2 owners requires trust between owners o Unlimited liability Limited Liability Company o 1 owners o Income Owners Corporation o Limited liability Owners not personally liable o Double taxation Review 1 Income Statement Statement of Operations 2 Statement of Retained Earnings Stockholder s Equity 3 Balance Sheet 4 Statement of Cash Flows Proprietorship and cannot pay its debt Partnership Four types of financial statements 1 Income Statement Model Name of statement Dateline period of time Revenue is also recorded first ABC Company Income Statement Year Ended 12 31 12 97 million 26 million single underline used when subtotaling Revenues Expenses Net Income 71 million double underline used at end If net income is a loss it would be in parenthesis ACCT 23020 Introduction to Financial Accounting Chapter 1 2 Statement of Retained Earnings ABC Company Statement of Retained Earnings Year Ended 12 31 12 Beginning Retained Earnings Net Income Dividends Ending Retained Earnings Assets Liabilities Equity Assets 3 Balance Sheet representation of the accounting equation o Economic resources that are expected to be of benefit in the future o i e supplies land prepaid expenses accounts receivable inventory equipment o Economic obligations debts payable to an individual organization outside of a business o i e long term debt accounts payable notes payable Liabilities Equity o Ownership interest of a corporation o i e common stock retained earnings ABC Company Balance Sheet December 31 2012 10 000 82 000 92 000 Liabilities Accounts Payable Notes Payable Total Liabilities Stockholder s Equity Common Stock Retained Earnings 14 800 40 200 Total Stockholder s Equity 55 000 Total Liabilities Equity 147 000 Assets Current Assets Cash Receivables Inventory 14 000 1 000 41 000 62 000 Total Current Assets Building Equipment 85 000 Total Assets 4 Statement of Cash Flows 147 000 Operations Investing Financing ACCT 23020 Introduction to Financial Accounting Chapter 1 Vocabulary Business entity An economic entity that can provide a service sell manufacture merchandise a product Entity assumption regardless of form is its own entity no mingling Going concern continuity assumption business going on indefinitely Historical cost principle to determine the price of sale by professional appraisal cost or the actual amount received from sale Stable monetary unit assumption measuring its land values in inflation adjusted amount
View Full Document
Unlocking...