121_01sg - Chapter 1Summarizing Business Activity and Using...

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Summarizing Business Activity and Using the Financial Statements 1 Chapter 1—Summarizing Business Activity and Using the Financial Statements CHAPTER OVERVIEW Chapter One introduces you to accounting. Some of the topics covered in this chapter are the types of business organization, the basic accounting equation, and financial statements. Like many disciplines, accounting has its own vocabulary. An understanding of accounting terminology and the other topics covered in this chapter will give you a good foundation towards mastering the topics in upcoming chapters. The specific learning objectives for this chapter are to 1. Understand accounting vocabulary and use it in decision making. 2. Analyze business activity with accounting concepts and principles. 3. Use the accounting equation to describe an organization’s financial position. 4. Read and interpret a company’s financial statements. 5. Understand the relationships among financial statements. CHAPTER REVIEW Objective 1 - Understand accounting vocabulary and use it in decision making. Accounting is a system that measures business activities, processes that information into reports, and communicates the results to decision makers. There are many users of accounting information. Individuals use accounting information to make decisions about purchases and investments and to manage their bank accounts. Businesses use accounting information to set goals for their businesses and to evaluate progress toward achieving those goals. Investors use accounting information to evaluate the prospect of future returns on their investments. Creditors use accounting information to evaluate a borrower’s ability to meet scheduled repayments of money loaned. Accounting information is also used by government regulatory agencies, taxing authorities, nonprofit organizations and others, such as employee and consumer groups. The three forms of business organization are 1. sole proprietorship - a business owned by one person. 2. partnership - a business owned by two or more individuals 3. corporation - a business owned by shareholders whose liability for business debts is limited to the amount the stockholder invested in the corporation. In the United States, proprietorships are numerically the largest form of business whereas corporations are the dominant form in terms of total assets, income, and number of employees. (Helpful hint: review exhibit 1-3 in the textbook.) A corporation is formed under state laws and has a legal identity distinct from its owner, the shareholders. Unlike in a proprietorship or partnership, the shareholders have no personal liability for the corporation’s liabilities. The shareholders elect a board of directors who appoint officers to manage the organization.
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2 Chapter 1 Objective 2 - Analyze business activity with accounting concepts and principles. The
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This note was uploaded on 10/24/2010 for the course ACCOUNTING 31609 taught by Professor R.ambrose during the Fall '09 term at San Mateo Colleges.

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121_01sg - Chapter 1Summarizing Business Activity and Using...

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