StudyGuideChap01 - 1-1 CHAPTER 1 Introduction to Financial...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1-1 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. 7. Explain the basic assumptions and principles underlying financial statements . 1-2 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 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 transfer of ownership may be difficult Corporation- a separate legal entity owned by stockholders Advantages easy to transfer ownership greater capital raising potential lower legal liability Disadvantages unfavorable tax treatment Study Objective 2- Identify the Users and Uses of Accounting The primary function of accounting is to A. provide financial information for decision making . The users of financial information fall into two categories--internal users and external users . Internal users- users within the organization. Marketing managers, production supervisors, finance directors and company officers Questions asked by internal users What is the cost of manufacturing each unit of product? Which product is the most profitable? 1-3 External users- users who are outside the organization. Investors (owners) Creditors (suppliers and bankers) Others (i.e. IRS, SEC, FTC, etc.) Internal users may ask: How does the company compare in size and profitability with competitors? Will the company be able to pay its debts as they come due? Study Objective 3- Explain the Three Principal Types of Business Activity There are three types of business activity: (Note: These activities are the sources of cash generation and will be central to the discussion on the statement of cash flows) 1. Operating activities- comprise the primary activities for which the organization is in business. a. Sources of funds (Cash) . Revenue is generated from sales or services b. Uses of funds . Expenses are incurred in earning revenue 2. Investing activities - obtaining resources or assets needed to operate the business (i.e. equipment, office supplies, etc.)....
View Full Document

This note was uploaded on 04/04/2010 for the course ACCOUTING ACCOUNTING taught by Professor Paigee.gee during the Fall '07 term at N.C. State.

Page1 / 26

StudyGuideChap01 - 1-1 CHAPTER 1 Introduction to Financial...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online