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accounting 3a - ECONOMICS 3A Chp 1 1 Sole proprietorship...

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ECONOMICS 3A Chp 1 1. Sole proprietorship o SIMPLE TO ESTABLISH o OWNERS CONTROLLED o Tax advantages 2. partnership o simple to establish o shared control o broader skills and resources o tax advantages 3. corporation o easier to transfer ownership o easier to raise funds o no personal liability 4. Internal Users o Marketing managers o Production supervisors o Finance directors o Company officers 5. External users o Investors
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o Creditors Sarbanes-Oxley Act (SOX) – top management must now certify the accuracy of financial information in order to reduce corporate fraud and scandal. Penalties for fraud became more severe, and outsides auditors who review the accuracy of corporate financial statements increased. o primary sources of outside funds for corporations o borrowing money o issuing shares of stock o Liabilities – amounts of money from debt own to creditors, what you owe o Notes payable o Bonds payable – debt securities sold to investors that must be repain at a particular date o Common stock – total amount paid to stockholders for the shares they purchase o Stockholders have no claim to corporate cash until the claims of creditors are satisfied. o Have no legal rights to payments unlike creditors. o Payments to stockholders are called dividends. o Assets – cash, property or equipment. What you own o Liabilities + stockholders equity Liabilities – claims of creditors Stockholders equity – claims of owners o Revenue – increase in assets from the sale of a product or service o Sales, service, or interest revenue o Expenses – cost of assets o Cost of goods sold, expense, taxes Net income – when revenue exceeds expenses
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Net loss – when expenses exceed revenue 1. Financial statement a. Balance sheet – point in time of what a business’ assets and liabilities b. Income statement –a report of a business performance, expenses, and revenue during a period of time i. Amounts received from issuing stock are not revenues, and amounts paid out as dividends are not expenses c. Retained earnings statement - how much income was distributed to the owners of a business in the form of dividens, and how much was retained in the business i. Time period same as covered by the income statement ii. Depends on the results of income statement iii. Net income retained in the corporation d. Statement of cash flows – where a business obtained cash during a period of time and how that cash was used i. Reports the cash effects of a company’s operating, investing, and financing ii. Reports net loss or income iii. Has to agree with amount of cash on the balance sheet o Comparative statements – allow users to compare the financial results of the business from one accounting period with those of previous periods.
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