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chapter 1 outline

chapter 1 outline - CHAPTER 1 Introduction to Financial...

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CHAPTER 1 Introduction to Financial Statements Chapter Outline Study Objective 1 - Describe the Primary Forms of Business Organization A business may be organized as a sole proprietorship , partnership , or corporation . Sole proprietorship - a business owned by one person Advantages simple to establish owner controlled tax advantages Disadvantages proprietor personally liable for all business debts financing may be difficult transfer of ownership may be difficult Partnership - a business owned by two or more people Advantages simple to establish shared control broader skills and resources tax advantages Disadvantages partners personally liable for all business debts transfer of ownership may be difficult Corporation - a separate legal entity owned by stockholders Advantages easier to transfer ownership easier to raise capital lower legal liability – no personal liability for stockholders Disadvantages unfavorable tax treatment The emphasis of this text is the corporate form of business. 1-1
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Study Objective 2 - Identify the Users and Uses of Accounting The purpose of financial information is to provide inputs for decision making. Accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users. The users of financial information fall into two groups-- internal users and external users . Internal users - users within the organization. Internal users and questions they may ask: Marketing What price will maximize the company’s net income? Human Resources Can we afford to give employees pay raises this year?
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