ACG2021 FALL 2014 PIERNO CHAPTER 1 Page 1 of 20 Sole Proprietorship o Owned by one person o Simple to set up o Gives you control o Favorable tax treatment o Personally liable for all debt and legal obligations Partnership o Owned by 2 or more persons o One individual does not have enough economic resources o Partners bring unique skills o Favorable tax treatment o Personally liable for all debt and legal obligations Corporation o Legal entity owned by stockholders o Inverters receive shares of stocks o Shares of stock are easy to sell o Can become stockholder by investing small amounts o Easier for corporations to raise funds o Higher tax o No personal legal liability Limited Liability Companies o Hybrid business forms o Combine tax advantages from partnerships with limited liability of a corporation Proprietorships and partnerships there are 5x more than corporations Revenue of corporations make 8x more than proprietorships and partnerships Accounting information system that identifies records and communicates to the economic events of an organization to interested user Users of accounting information divided into 1 Internal Users a Managers who plan organize and run a business i Marketing managers production supervisors finance directors 2 External users company officers etc Investors owners use info to decide if to buy hold sell stock a b Creditors suppliers bankers evaluate risks on credit or lending money Sarbanes Oxley Act SOX congress passed to reduce unethical corporate behavior and decrease likelihood of future corporate scandals top management must certify accuracy of financial information Accounting info backbone of financial accounting Accounts Receivable Right to receive money in the future o Asset resources owned by a business cash is most important o Liabilities o Expenses costs of assets consumes services used in process of generating revenue o Revenues decreases an asset or decreases a liability o Source of revenue Sales revenue service revenue interest revenue etc Dividends Cash payment to Stockholders ACG2021 FALL 2014 PIERNO CHAPTER 1 Page 2 of 20 Four Financial Statements 1 Income Statement to show how successful your business performed during periods of time Revenue Expenses Net Income 2 Retained Earnings Statement to indicate how much of previous income was distributed to you and other owners in form of dividends and how much was retained in business for future growth Beginning Retained Earnings net income dividends End Retained Earnings 3 Balance Sheet Present picture at point in time of what business owns assets and it what it owe liabilities specific point in time Stock holders Equity Common Stock Retained Earnings Assets Liabilities Stockholders Equity 4 Statement of Cash Flows To show how business obtained cash during period of time and how cash was used Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Annual Report Publicly trades U S companies must provide this to shareholder includes 1 4 Financial Statements 2 Management discussion and analysis Views on company s ability to pay near term obligations its ability to fund operations and expansions and its results of operations 3 Notes to financial statements Clarify financial statements essential to understanding a company s operating performance and financial position 4 Independent auditors report Prepared by outside auditor states auditors opinion ACG2021 FALL 2014 PIERNO CHAPTER 1 FOUR FINANCIAL STATEMENTS Page 3 of 20 Income Statement Revenues Expenses Total Revenues x Total Expenses y Net income x y Retained Earnings Statement Retained Earnings at Beginning x y Net Income Dividends dividends Ending Retained Earnings Balance Sheet Assets Cash accounts notes interest receivable equipment supplies prepaid Total Assets Liabilities Accounts notes interest payable unearned revenue Total Liabilities Stock Holders Equity Common Stock Retained Earnings Total Stock Holders Equity Total Liabilities and Stockholders Equity Statement of Cash Flows Cash flows from Operating Activities Cash receipts from operating cash revenues Cash payments for operating cash expenses Net cash from operating A Cash flow from Investing Activities Purchase of equipment Cash flow from Financing Activities Net cash from investing B Common Stock Notes payable Loans Dividends Paid Net Cash from financing C Cash at beginning of Period Given Net increase in cash A B C Cash at end of period Given A B C Page 4 of 20 HILIGHTED ACCOUNTS SHOULD BE THE SAME NUMER ACG2021 FALL 2014 PIERNO CHAPTER 1 BALANCE SHEET ASSETS LIABILITIES STOCKHOLDERS EQUITY RETAINED EARNINGS COMMON STOCK BEGINNING RETAINED EARNINGS NET INCOME DIVIDENDS REVENUES EXPENSES Page 5 of 20 ACG2021 FALL 2014 PIERNO CHAPTER 2 Operating Cycle average time required to go from cash to cash in producing revenue ex Purchase inventory sell it on account collect cash from customers Classified Balance Sheet Groups together similar assets and similar liabilities Assets Current Assets Long Term Investments Property Plants and Equipment Intangible assets Liabilities and Stockholders Equity Current Liabilities Long Term Liabilities Stock Holders Equity Helps determine 1 If the company has enough assets to pay debts as they come due 2 Claims of short term and longer term creditors on company s total assets ASSETS CURRENT ASSETS assets that a company expects to convert to cash or use up within one year or its operating cycle whichever is longer o Includes but not limited to cash short term investments receivables inventories supplies prepaid expenses LONG TERM INVESTMENTS o Includes Investments in stock bonds of other corporations held for more than a year Long term assets land buildings Long term notes receivable PROPERTY PLANT AND EQUIPTMENT P P E Long useful life assets used in operating business o Includes but not limited to Land buildings equipment delivery vehicles furniture Accumulated Depreciation Shows total amount of depreciation company has expensed thus far in assets life Example Accumulated deprecation Equipment LIABILITIES operating cycle CURRENT LIABILITIES Obligations that company must pay within next year of o Includes but not limited to accounts salaries and wages notes interest income taxes payable current maturities of long term obligations payments to be made within next year of long term obligations LONG TERM LIABILITIES long term debt obligation company expects to pay after one year o Includes but not limited to bonds
View Full Document
Unlocking...