Chapter 1 Review - CHAPTER 1-FINANCIAL DECISIONS AND...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 1—FINANCIAL DECISIONS AND BUSINESS DECISIONS Types of business Entities Sole Proprietorship o Not incorporated o Not legally separate from its owners (liability) o Usually owned by one person “the family business” o Owner is usually the manager o Accounting views as separate entity from its owner Partnership o Not incorporated o Owned by two or more persons o Not legally separate from its owners (liability) o Accounting views as separate entity from its owner Corporation o Incorporated o Legally separate form it owners o Owners are stockholders o Limited liability for stockholders o Dominant form of business and main focus of this course o Continuity of life o Ability to raise large sums of capital o Earnings double-taxed THE FOUR BASIC FINANCIAL STATEMENTS: AN OVERVIEW Financial statements should be accurate and should contain adequate disclosures. Decision makers rely on these statements. If errors are made in the statements, lawsuits may result from decisions made on these erroneous statements. Financial statements summarize business activities. These reports are prepared annually. Interim statements may be prepared more frequently (monthly or quarterly). Understanding business definitions and key relationships is crucial to using financial statements. Chapter 1 Review Notes Acc 311 - Page 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Structure Company name - the accounting entity (separate entity assumption). Title - Balance Sheet or Statement of Financial Position. Date - at a point in time. Unit of measure - U.S. dollars, Mexican pesos, etc., which may be Presented in thousands, millions of dollars, pesos, etc. Basic Accounting Equation (Balance Sheet Equation) A = L + SE Economic resources = Sources of financing What you have = Where it came from A – L = SE Net assets = Owners’ equity or residual equity Owned - Owed = Net Worth Assets are economic resources owned by the company as a result of past transactions. They represent economic resources expected to provide future benefits to the company. Examples - cash, accounts receivable, inventories, plant and equipment, etc. Initial recording is at the original cost to acquire it (cost principle). Liabilities are amounts owed by the company as a result of past transactions. Creditor financing creates debt to be repaid in the future (notes payable). Other amounts owed arising from past events (wages payable, accounts payable, etc.). Stockholders' Equity results from two basic categories: Contributed Capital ( CC ) - amounts invested by the owners. Retained Earnings ( RE ) - accumulations of undistributed earnings (amounts earned by the company reduced by previous dividends). Owners of corporate stock are generally not personally liable for thecompany's debts.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

Chapter 1 Review - CHAPTER 1-FINANCIAL DECISIONS AND...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online