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Chapter Notes - FinancialAccounting:ChapterOne ChapterOne:...

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Financial Accounting: Chapter One 03:34 Chapter One:  Financial Statement and Business Decisions Understanding the Business The Players     o Owner managers:  Founders function as managers of the business o Creditor:  A company’s (largest loan) lender o Investors:  Person/people who buy a company/invest in it o Manager o Dividends:  Portion of what a company earns in the form of cash  payments o Financial Activities:  When a company borrows additional money or pays  back money to its lenders and receives additional funds or pays dividends  to owners o Investing Activities:  When a company buys or sells items; such as plant  and equipment used in producing disk drives The Business Operations     o Operating Activities:  What a company does in operations o Suppliers:  Companies that sell products to other companies o Customers:  Individuals or companies that purchase a good The Accounting System     o Accounting System:  Collects and processes financial information about  an organization and reports that information to decision-makers o Internal Decision Makers:  People within a company that make decisions o External Decision Makers:  People outside a company that make  decisions The Four Basic Financial Statements:  An Overview Summarize financial activities of a business Can be prepared at any time and apply to any time span The Balance Sheet     o Balance Sheets  report the financial position (amount of  assets liabilities and  stockholders’ equity ) of an accounting entity at a particular point in  time o Structure     Heading of Document:
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Name of Entity Accounting Entity  is the organization for which financial data are  to be collected Title of the Statement Specific Date of the Statement Unit of Measure Body of Document: Assets Cash  (The amount of cash in the company’s bank accounts) Accounts Receivable  (Amounts owed by customer from prior  sales) Inventories  (Parts and completed but unsold items) Plant & Equipment  (Factories and production machinery) Land  (Land on which the factories are built) T OTAL  A SSETS Liabilities Accounts Payable  (Amounts owed to suppliers from prior  purchases) Notes Payable  (Amounts owed on written debt contracts) T OTAL  L IABILITIES Stockholders’ Equity Contributed Capital  (Amounts invested in business by  stockholders) Retained Earnings  (Past earnings not distributed to  shareholders) T OTAL  S TOCKHOLDERS ’ E QUITY T OTAL  L IABILITIES  & S TOCKHOLDERS ’ E QUITY o Basic Accounting Equation  ( Balance Sheet Equation ) : Assets = Liabilities + Stockholders’ Equity Assets = Economic Resources, e.g. Cash, Inventory
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