ch. 1 - Chapter 1 Study Objectives After studying this...

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Financial Accounting - Chapter 1 1 Chapter 1 - Study Objectives After studying this chapter, you should be able to: 1. Describe the primary forms of business organizations. 1. Identify the users and uses of accounting. 1. Explain the three principal types of business activity. 1. Describe the content and purpose of each of the financial  statements. 1. Explain the meaning of assets, liabilities, and stockholders’  equity, and state the basic accounting equation. 1. Describe the components that supplement the financial  statements in an annual report. 1. Explain the basic assumptions and principles underlying  financial statements.
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Financial Accounting - Chapter 1 2 Forms of Business  Organizations In the U.S. accounting principles applies to the following three  forms of business organizations: 1. Sole Proprietorship -  a business owned by one person.   Advantages are: it is easy to establish, it’s owner controlled,  and there are tax advantages.  The disadvantage is unlimited  liability for debts of the business.   1. Partnership -  a business owned by two or more persons.   Advantages are: it is easy to establish, there is shared control,  and tax advantages.  The disadvantage is also unlimited  liability for debts of the business.   1. Corporation -  a business organized as a separate legal entity  owned by stockholders.  Its advantage are: easy to transfer  ownership, greater capital raising ability, and limited liability for  its debts.  Its primary disadvantage is double taxation. 
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Financial Accounting - Chapter 1 3 Accounting: The Language of  Business Accounting  is the means by which we  measure and describe the results of  economic activities. Purpose:   Is to provide decision-makers with  information useful in making economic  decisions. Our Primary Goal:   Is to develop an  understanding of accounting information and  develop an ability to use it effectively.
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Financial Accounting - Chapter 1 4 Functions of the Accounting  System   The primary functions of the accounting  system are: Recording  Classifying Summarizing Interpreting the financial transactions of an economic  entity.
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Financial Accounting - Chapter 1 5 Users and Uses of Financial  Information The primary users of accounting information can be  divided into two groups: external users and internal  users.  External users are: Present and potential investors and creditors Government agencies The general public Other users Internal users are: Management
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Financial Accounting - Chapter 1 6 External Users Investors, creditors, and other external users use  financial information to the following questions: Is the company earning satisfactory income?
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