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ACCOUNTING CH 1 NOTES Businesses (conversion agents) need financial resources (money) to get started -investors/creditors provide financial resources investors- provide financial resources in exchange for ownership interests in businesses -creditors- lend financial resources to businesses- expect buesinesses to repay borrowed resources at future date -resources controlled by a businesses are ASSETS liquidation- business ceases to operate, assets are sold etc creditors receive fixed amount of money called INTEREST physical resources (natural) laor resources (intellectual/physical labor) stakeholders- users of accounting info….fiancial analysts, brokers, attorneys, etc acctg info for external users- FINANCIAL ACCTG acctg info internal users – MANAGERIAL ACCTG focus of acctg- to provide info useful to making decisions for business/nonbusiness groups careers public acctg- CPA- audit services, tax services, consulting services audit- examine acctg records of company to see about how finanacial statements conform to generally accepted acctg principles tax services- determine taxes due, help co minimize tax expense consulting- provide financial advice, etc FASB- financial accounting standards board- establish acconting standards called GAAP – generally accepted acctg principles Reporting entities- people/businesses that get reported on ELEMENTS OF FINANCIAL STATEMENTS Stakeholders- owners, lenders, gov agencies, employees, etc FOUR FINANCIAL STATEMENTS 1) income statement 2) statement of changes in equity 3) balance sheet 4) statement of cash flows info reported in statements is issued in 10 CATEGORIES known as ELEMENTS info about elements is maintained in records called ACCOUNTS resources a business uses to produce earnings are called ASSETS resource providers (creditors/investors) have potential CLAIMS on assets owned by a business….relationship ASSETS=CLAIMS creditor claims are called LIABILITIES investor claims are called EQUITY, therefore ASSETS= LIABILITIES + EQUITY liabilities- obligations of the enterprise
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CLAIM- a legal action to obtain money, property, enforcement of right against another party Common stock- stockholders, ownership interest is stockholders equity Portion of assets provided by earnings activities and not returned as dividends is RETAINED EARNINGS, therefore ASSETS= LIABILITIES + (common stock + retained earnings) Acquire assets from owners (stockholders), borrow from creditors, earn through profitable operations Revenue- represents an economic benefit a company obtains by providing customers with goods and services revenue transactions can therefore be viewed as asset soure transactions *all asset use transactions decrease the amount of assets and total amont of claims on assets (ie liability) *business consumes assets and services…called EXPENSES if a business transfers some or all assets to owners, called DIVIDEND (NOT AN EXPENSE)….not recorded directly into the Retained Earnings Account, but recorded in dividend account
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This note was uploaded on 10/13/2011 for the course ACCOUNTING 221 taught by Professor West during the Spring '08 term at UMass (Amherst).

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