Accounting Chapter 1

Accounting Chapter 1 - FINANCIAL ACCOUNTING NOTES FOR...

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1 FINANCIAL ACCOUNTING NOTES FOR CHAPTER 1 By Bob Milbrath TOPICS: TYPES OF BUSINESS ORGANIZATIONS THE ACCOUNTING EQUATION CORPORATIONS AND FINANCIAL ACCOUNTING ANALYZING BUSINESS TRANSACTIONS FINANCIAL REPORTING AND FINANCIAL FINANCIAL REPORTING AND FINANCIAL STATEMENTS USING FINANCIAL REPORTING INFORMATION Financial Accounting and the Accounting Equation • Financial accounting keeps track of the assets, liabilities and equity accounts of a business. Performance is measured by keeping • Performance is measured by keeping track of the revenues and expenses which affect net income (profit) and the value of the owners’ investment (equity).
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2 THE ACCOUNTING EQUATION • Assets = the economic resources of a business entity • Liabilities = obligations payable from the assets. • Owners’ equity = the value of the owners’ claim on the assets after deducting liabilities. The Accounting Equation May be expressed in different ways: ASSETS = LIABILITIES + OWNERS’ EQUITY Or ASSETS – LIABILITIES = OWNERS’ EQUITY Accounting Equation-example • Suppose you purchase a car by paying $4,000 down and borrowing $16,000. • The asset you have is a vehicle costing $20,000 • However, you owe $16,000 on the car. However, you owe $16,000 on the car. • So your “owners’ equity” in this car is $4,000. $20,000 = $16,000 + $4,000 Asset Liability Owner’s equity
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3 TYPES OF BUSINESS ORGANIZATIONS 1. Unincorporated Businesses 1. Sole proprietorships (one owner) 2. Partnerships (two or more owners) 2. Corporations (incorporated)* 3. Other hybrid types: limited liability partnerships and companies (LLP’s, LLC’s), Cooperatives etc. *In this course we focus on corporations Organizing a Corporation • Incorporators obtain a charter from the state. • Charter authorizes corporation to issue shares of stock and conduct business in accord with state law and corporation bylaws.
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Accounting Chapter 1 - FINANCIAL ACCOUNTING NOTES FOR...

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