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Unformatted text preview: CHAPTER 1 Introduction to Financial Statements Study Objectives 1. Describe the primary forms of business organization. 2. Identify the users and uses of accounting information. 3. Explain the three principal types of business activity. 4. Describe the content and purpose of each of the financial statements. 5. Explain the meaning of assets, liabilities, and stockholders equity, and state the basic accounting equation. 6. Describe the components that supplement the financial statements in an annual report. . 1-1 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. 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....
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- Spring '07