financial accounting

financial accounting - 6A:001 Fall 2010 Chapter 1 Al...

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Al Schepanski 6A:001 – Fall 2010 – Chapter 1 1 1. Types of Businesses : For Profit Not-for-Profit * * * * Limited Liability Company * Government (federal, state, and local) * Private (hospitals, universities) Our focus will be on the Corporation 2. Business Activities of a Corporation: Activity Financing: Obtain funds (dollars) to start, maintain, and grow the business. Examples: * * Investing: Invest funds in productive resources. Examples: * * Operating: Conduct the activities that are expected to yield profit for the company’s owners. Examples: * * * * 3. What is Accounting? It is an information system that measures business activities, then processes these activities into accounting reports which are communicated to various decision makers (users). This information system consists of 2 categories: (1) Managerial Accounting : (2) Financial Accounting : This course deals with financial accounting .
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Al Schepanski 6A:001 – Fall 2010 – Chapter 1 2 In addition to conducting day-to-day operations related to making sales and performing services for customers, ( operating activities ), corporations also seek to expand operations into new geographic areas, new product lines, etc. which, in turn, require the company to purchase more land, buildings, and equipment ( investing activities ). But to purchase these productive resources, the corporation usually must attract, and compete for, money from outside parties ( financing activities ) such as investors, mutual funds, insurance companies, venture capital firms, individuals, etc.) and lenders (banks). These investors and lenders need information to decide with which of many corporations they should invest/lend their money. The principal source of this information comes from the accounting reports (called financial statements ) provided by financial accounting. The primary objective of financial accounting: 4. Accounting Equation – VERY IMPORTANT – Know this!!! ASSETS = LIABILITIES + OWNERS’ EQUITY Items of value (future economic benefits). Examples : * * * * Assets received from (owed to) creditors. Examples : * * * * Assets received from stockholders. Examples: * * Assets Provided these assets Accordingly, in order for the Accounting Equation to remain in balance, increasing (decreasing) an asset will result in: Decreasing (increasing) a second asset, or Increasing (decreasing) a liability, or Increasing (decreasing) equity, or A combination of the above.
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Al Schepanski 6A:001 – Fall 2010 – Chapter 1 3 6. Accounting Equation Example: Assets = Liabilities + Stockholders' Equity 1 _______ __ _______ = + 2 ______ ______ _ _ = + 3 ______ ______ _ = + 4 ______ _ ______ = + 5 ______ ______ _ = + 6 _ ______ ______ = + Total: Effects of Transactions on the Accounting Equation common stock in settlement of $5000 of the amount owed Subtotal: (decrease in a liability, increase in equity) amount due (decrease in both an asset and a liability)
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financial accounting - 6A:001 Fall 2010 Chapter 1 Al...

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