Reading Notes Chapter 6

Reading Notes Chapter 6 - September 11, 2007 Accounting...

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September 11, 2007 Accounting Chapter 6 Reading Notes 1. Types of business organizations 1. Sole proprietorships: business with a single owner 1. Easy to start and operate 2. Owner has total control 3. Owners pay taxes on personal income statement 2. Partnerships: two or more owners 1. Combine economic resources and skills of many people 2. No owner has complete control 3. Agreement is needed to formalize a number of issues 4. Owners pay taxes on personal income statement 3. Corporations: a number of owners with interest evidenced by shares of stock 1. Stock traded on an organized stock exchange 2. Easier to raise money 3. Legal entities separate from their owners 1. Pay income taxes 2. Types of Financial Statements: 1. The Income Statement 1. Comparative statement 3 years 2. Gross profit: the difference between selling price and cost of the item sold 1. Must be larger than other expenses to be profitable 3. Net income per common share: divide net income by average number of shares owned by stock holders 2. Consolidated statement of common shareholders’ equity 1. Comparative statement 2. Retained earnings 1. Add net income 2. Subtract dividends 1. Not an expense but distribution of earnings 2. Some companies think shareholders want high dividends 3. Some companies distribute little dividends and use for growth 3. Balance sheet 1. Assets 1. Current assets 1. Cash and assets expected to be converted to cash, sold, or used for production the next year 2. Several operating cycles
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Reading Notes Chapter 6 - September 11, 2007 Accounting...

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