ch01 - CHAPTER 1 Introduction to Financial Statements...

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CHAPTER 1 Introduction to Financial Statements CHAPTER OVERVIEW Chapter 1 introduces you to a variety of financial accounting topics. You will learn about the primary forms of business organization and the three principal types of business activity. You will also learn about users of accounting information and how that information is delivered. Finally, you will learn about the basic financial statements and their components as well as items that supplement the financial statements in an annual report. REVIEW OF SPECIFIC STUDY OBJECTIVES SO1. Describe the primary forms of business organization. ¿ A sole proprietorship is a business owned by one person. It is simple to set up , and the owner has control over the business . Because they are so simple to organize, there are many thousands of sole proprietorships operating in the business world. ¿ A partnership is a business owned by two or more persons associated as partners. It provides strength in numbers: each partner may bring economic resources or unique talents or skills to the combination.
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Kimmel Accounting: Tools for Business Decision Making 1-2 ¿ A corporation is a separate legal entity owned by stockholders. Advantages include the fact that shares of stock are easy to sell and that the raising of funds is easy . While there are many more sole proprietorships and partnerships than there are corporations, corporations produce far more revenue. SO2. 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 . ¿ Internal users are people who work for the business, managers who plan, organize, and run a business . Accounting information helps to answer questions such as, "Does the business have enough resources to build a new manufacturing plant?" Internal reports help to provide the required information. ¿ External users work outside of the business and include investors who use accounting information for their stock decisions; creditors who evaluate the risk of lending to and the credit-worthiness of business borrowers; taxing authorities, which review compliance with tax laws; regulatory agencies, which review compliance with prescribed rules; customers ; labor unions ; and economic planners . ¿ It is critical that users trust accounting reports and financial statements . Concerned about the financial scandals and afraid that users would lose confidence in corporate accounting, United States regulators and lawmakers in 2002 passed the Sarbanes-Oxley Act . Among the provisions of the act are: top management must certify the accuracy of financial information; penalties for fraudulent financial activity are very severe; outside auditors must be more independent; and boards of directors have increased responsibility in their oversight roles. SO3.
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ch01 - CHAPTER 1 Introduction to Financial Statements...

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