Introduction to Accounting Readings Week 1

Introduction to Accounting Readings Week 1 - Andrew Demsey...

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Andrew Demsey INTRODUCTION TO ACCOUNTING READINGS WEEK 1 READING: CHAPTER 1 “Accounting is the art or recording, classifying, and summarizing in a significant manner and in terms of money events and transactions which are in part, at least, of a financial nature and interpreting the results thereof.” In business accounting and financial statements are the means for communicating the numbers. Sole Proprietorship – A business owned by one person. o Simple to setup and gives one control over the business o Examples are small owner-operated businesses such as barber shops, law offices, and auto repair shops. Partnership – A business owned by two or more associated persons. o Partnerships are often formed because: One individual does not have enough economic resources to initiate or expand the business. Partners bring unique skills or resources to the partnership. o Partners should formalize duties and contributions in a written partnership agreement. o Examples of partnerships are retail and service-type businesses including professional practices (lawyers, doctors, architects, and certified public practices). Corporation – A business organized as a separate legal entity owned by stockholders. o Investors in corporations receive shares of stock to indicate your ownership claim. Buying stock in a corporation is better than investing in partnerships because shares of stock are easy to sell. Individuals can become stockholders by investing relatively small amounts of money; therefore it is easier for corporations to raise funds. Tax and Legal Liability with Business Organizations: o Sole Proprietorship – Receives more favorable tax treatment than a corporation. Personally liable for all debts. o Partnership – Receives more favorable tax treatment than a corporation. Personally liable for all debts. o Corporation – Corporate stockholders generally pay higher taxes but have not personal liability for debts. Accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users. Users – People that have an interest in knowing about the ongoing activities of the business.
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Andrew Demsey o Internal Users – Managers, who plan, organize, and run a business. These people include marketing managers, production supervisors, finance directors, and company officers. o External Users – Several types of external users: Investors – (Owners) that use accounting information to make decisions to buy, hold, or sell stock. Creditors – Such as suppliers and bankers that use accounting information to evaluate the risks of granting credit or lending money. Taxing Authorities
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This note was uploaded on 10/20/2010 for the course ACCY 051 taught by Professor Irene during the Fall '09 term at GWU.

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Introduction to Accounting Readings Week 1 - Andrew Demsey...

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