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AEM 221 ReviewSheet

AEM 221 ReviewSheet - Communication is key Owner-Managers...

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Communication is key Owner-Managers: founders/managers Creditors: lend money to a business and charge interest Investors: buy stock in a company o Sell ownership interest in the future for more than they paid o Receive a portion of the company’s earning in cash (dividends) Manufacturers make of buy parts from suppliers needed to produce its products Management o maintains a system of controls, hires outside independent auditors, forms a board of directors the review these two safeguards o Responsible for preparing financial statements High quality = relevance + reliability Useful to investors and creditors Auditors: determine if the financial statement presentation is fair, have responsibilities to the general public o Examine the financial reports to ensure compliance with GAAP o Examine underlying transactions incorporated into the financial statements The American Institute of Certified Public Accountants (CPA) requires that all members follow a code of ethics Accounting System: collects and processes financial information and reports information to decision makers Financial Accounting: periodic financial statements and related disclosures given to external decision makers (investors, creditors, suppliers, customers) Managerial Accounting System: detailed plans and continuous performance reports given to internal decision makers (managers throughout the organization) Financial Statements: summarize the financial activities of the business; prepared at the end of the year (annual reports), quarter or month; company, title, period, units Balance Sheet – ASSETS = LIABILITIES + STOCKHOLDER’S EQUITY ; duality of effects, accounting equality is always balanced o Assets: owned Cash Short-term investments Accounts Receivable: amount owed by customers from prior sales Notes receivable Prepaid expenses Inventory (to be sold) Supplies Long-term investments Plant and equipment Land
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Intangibles o Liabilities: owed Accounts Payable: amounts owed to suppliers for prior purchases Accrued Expenses Notes payable: amounts owed on written debt contracts Taxes payable Unearned revenue Bonds payable o Stockholders Equity: financing provided by owners Contributed capital
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AEM 221 ReviewSheet - Communication is key Owner-Managers...

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