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ACCT 2331 1-3.docx - 1 ACCT 2331 Chapter 1 A Framework for...

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ACCT 2331Chapter 1 – A Framework for Financial AccountingAccountingis the language of business.It is the information system that measuresbusiness activity, processes the data into reports and communicates the results to decisionmakers.Informationincludes facts, ideas, and concepts that help us understand the world.You mustbe able to interpret information in order to be able to use it and understand its limitations.Abusiness stakeholderis a person or entity that has an interest in the economicperformance and well-being of a business.Accounting Informationhelps stakeholders(decision makers) determine where they are, where they have been and where they aregoing.Accounting information is used by:1.Individualsto make investment decisions or manage a checking account.2.Business managersto set goals, evaluate those goals, and take corrective action.3.Investorsto decide whether to invest in a business or evaluate an investment.4.Creditorsto evaluate a borrower’s ability to make required payments.5.Government regulatory agenciesto determine if government regulations have beenfollowed.6.Taxing authorities, such as the IRS, to determine the amount of tax due.7.Non-profit organizationswhich use accounting information in virtually the same way asfor-profit organizations.8.Various other users, such as employees and labor unions.Forms of Business Organizations:1.Proprietorship- a business with a single owner. The owner has unlimited liability whichmeans that the owner assumes personal responsibility for the debts of the business.2.Partnership- a business with two or more owners.Each partner has unlimited liability.3.Corporation- a business owned by shareholders whose ownership is evidenced by thenumber of shares or stocks held.A corporation is run by theboard of directorswho areelected by the shareholders.A shareholder has limited liability.A corporation has many ofthe rights that a person is entitled to:a. The right to enter into contracts.b. The right to sue and be suedc. The right to own, buy, and sell property.4.Limited-Liability partnerships (LLPs) and Limited-Liability Companies (LLCS)each member/partner is liable (obligated) only for his/her own actions and those underhis/her control.5.Not-for-Profits –has been approved by the Internal Revenue Service (IRS) tooperate for a religious, charitable, or educational purpose.Business ActivitiesFinancing Activities –involve obtaining funds to begin and operate a business.Thisis done by borrowing funds (incurring long-term debt) or issuing shares of ownership(issuing/selling stock)Chapter 2 --- The Accounting Cycle: During the PeriodPage 1 of 311
Investing Activities –are used to obtain the necessary assets to start and operatethe businessOperating Activities –involve earning revenue and incurring expenses which result ina profit (if revenue is greater than expenses) or a loss (when revenue is less than expenses)CLASSIFICATION OF ACCOUNTS in the Accounting EquationAssets.Resources of a company.

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