Accounting Midterm 1 study guide

Accounting Midterm 1 study guide - Accounting Midterm 1...

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Accounting Midterm 1 Study Guide Ellie Kahn CHAPTER 1 Three forms of business organizations: 1. Sole proprietorship a. Owned by one person a.i. Favorable tax treatments a.ii. Personably liable a.iii. Barber shops, farms, law offices, etc. 2. Partnership a. Owned by two or more people associated as partners a.i. Favorable tax treatments a.ii. Personably liable a.iii. Doctors, architects, etc. 3. Corporation a. Organized as a separate legal entity owned by stockholders a.i. Pay higher taxes a.ii. Not personably liable a.iii. Invest in stocks easy to sell Users of financial information Internal users o Managers who plan, organize, and run a business External users o Investors make decisions to buy, hold, or sell stock o Creditors evaluate the risks of selling on credit or lending money Sarbanes- Oxley Act: passed by congress in 2002 to reduce unethical behavior and decrease the likelihood of future corporate scandals Three types of business activities 1. Financing a. Liabilities : amounts owed to creditors- in the from of debt and other obligations a.i. Notes payable, bonds payable, accounts payable b. Common stock: describes the total amount paid in by stockholders for the shares they purchase c. Dividends: payments made to stockholders on a regular basis as long as there is sufficient cash to cover required payments to creditors 2. Investing a. The purchase of the resources a company needs in order to operate a.i. Assets: resources owned by a business
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a.i.1. Property, plant, and equipment a.i.2. Cash 3. Operating a. Revenue: the increase in assets resulting from the sale of a product or service in the normal course of business a.i. Sales revenue, service revenue, interest revenue b. Accounts receivable: the right to receive money in the future c. Expenses: the cost of assets consumed or services used in the process of generating revenues c.i. Cost of goods sold, selling expense, interest expense, income expense, etc. c.ii. May have liabilities resulting from the expenses c.ii.1. Accounts payable, interest payable, etc. c.iii. Net income: revenues exceed expenses c.iv. Net loss: expenses exceed revenue Four different financial statements 1. Income statement a. Reports the success or failure of the company’s operations for a period of time a.i. For the year ended… a.ii. Revenues a.iii. Expenses a.iv. Net income/loss b. Provides useful information about the future 2. Retained earnings statement a. Net income retained in the corporation shoes the amounts and causes of changes in retained earnings during the period a.i. For the year ended… a.ii. Beginning retained earnings amount a.iii. Add: net income a.iv. Less: dividends a.v. Retained earnings at the end of the period 3. Balance sheet a. Reports assets and claims to assets at a specific point in time claims assets to two categories a.i. Liabilities: claims to creditors a.ii. Stockholders’ equity: claims of owners b. Basic accounting equation b.i. Assets = Liabilities + Stockholders’ Equity
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Accounting Midterm 1 study guide - Accounting Midterm 1...

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