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Unformatted text preview: Accounting Notes • Purpose of accounting – identify, measure, and communicate economic information to assorted users o Financial accounting geared towards finance and outside users • Users of financial information and decisions made o Bankers – making loans o Financial analysts – buy/sell stock o Stockholders – investing decisions o Owners and managers – expansion • The Accounting Equation (A = L + OE) o Assets = liabilities + owners’ equity o Assets – future economic benefit o Liabilities – an obligation of a business • The Balance Sheet (BS) o As of a part of time o Total assets must equal total liabilities plus owners’ equity o Assets and liabilities segregated between current and non-current Current – cash Non-current – equipment o Owners’ equity – 3 types – sole proprietorship, partnership, corporation Sole proprietorships and partnerships have capital accounts or draw accounts Sole proprietorships and partnerships are not taxable entities Corporations have stock accounts or retained accounts • The Income Sheet (IS) o Calculates net income (revenue – expenses = net income) o Revenues and expenses for a period of time o Revenues and expenses are typically componentized • The Statement of Retained Earnings o May be added to bottom of income sheet o Beginning RE + net income – dividends = ending RE • Relationship between financial statements o Net income from income statement flows to statement of retained earnings o Ending retaining earnings flows to the balance sheet • Financial statement assumptions o Economic entity concept – assumption that a single, identifiable unit must be accounted for in all situations o Cost principle – assets are recorded at the cost to acquire them (not market value) o Going concern principle – the assumption that an entity is not in the process of liquidation and that it will continue indefinitely o Monetary unit – dollar in the US o Time period – used as the basis for preparing financial statements •...
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This note was uploaded on 04/18/2008 for the course ACCT 2300 taught by Professor Thomasdownen during the Fall '06 term at Texas Tech.
- Fall '06
- Financial Accounting