Chapters 1-4 ext-1

Chapters 1-4 ext-1 - Chapter 1 Accounting Information and...

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Chapter 1 Accounting Information and Decision Making I. Accounting as a Measurement/Communication Process a. Defining Accounting i. Accounting     - system of maintaining records of a company’s operations  and communicating this information to decision makers. ii. The functions of accounting are to measure the activities of the company  and communicate those measurements to people iii. Two types: 1. Managerial     - methods accountants use to provide info to internal  users 2. Financial     -functions: to measure business activities of a company  and to communicate those measurements to external parties for  decision-making purposes. iv. Investors     -make decisions related to buying and selling stock v. Creditors     -make decisions related to lending money to the company b. Business Activities to Measure i. Three fundamental activities: 1. Financing     - involving external sources of funding 2. Investing     -the purchase and sale of (1) long-term resources such  as land, buildings, equipment, and machinery and (2) any  resources not directly related to a company’s normal operations 3. Operating     - transactions that relate to the primary operations of the  company ii. Accounting Equation
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1. A= L+SE 2. Assets(A)     - resources owned by a company 3. Liabilities(L)     - amounts owed to creditors 4. Stockholders’ Equity (SE)     - owners’ claims iii. More definitions 1. Revenues     -amounts earned 2. Expenses     - costs of providing products and services 3. Net income     - difference between revenues and expenses (if  negative=net loss) 4. Dividends     - regular cash payments to stockholders (usually every 3  months) iv. Forms of Business Organizations 1. Types: a. Corporation     -has stockholders b. Sole proprietorship     -owned by a single person c. Partnership     -owned by two or more persons 2. Major advantage of the corporate form of business is the limited  liability of the corporation’s stockholders. Limited liability stockholders are not held personally responsible for the financial  obligations of the corporation. 3. Major disadvantage of corporate is its higher tax burden on the  owners. Double taxation is when the corporation pays income tax  and then the individual also pays their personal income tax c. Communicating Through Financial Statements - periodic reports published by the  company to provide information to external users
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i. Types 1. The Income Statement     -reports the company’s revenues and  expenses over an interval of time Revenues: Training revenue $6,360 Expenses: Salaries expense $3,100 Rent Expense 500 Supplies Expense 800 Total Expense 4,400 Net Income $1,960 2. The Statement of Stockholders Equity (SE)
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Chapters 1-4 ext-1 - Chapter 1 Accounting Information and...

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