Chapter 1 Notes

Chapter 1 Notes - CHAPTER 1 Introduction to Financial...

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CHAPTER 1 Introduction to Financial Statements Study Objectives 1. Describe the primary forms of business organization. 2. Identify the users and uses of accounting information. 3. Explain the three principal types of business activity. 4. Describe the content and purpose of each of the financial statements. 5. Explain the meaning of assets, liabilities, and stockholders’ equity, and state the basic accounting equation. 6. Describe the components that supplement the financial statements in an annual report. 1-1
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Chapter Outline Study Objective 1 - Describe the Primary Forms of Business Organization. A business may be organized as a sole proprietorship , partnership , or corporation . Sole proprietorship - a business owned by one person Advantages simple to establish owner controlled tax advantages that are more favorable than a corporation Disadvantages proprietor personally liable for all business debts financing may be difficult transfer of ownership may be difficult Partnership - a business owned by two or more people Advantages simple to establish shared control broader skills and resources tax advantages that are more favorable than a corporation Disadvantages partners personally liable for all business debts transfer of ownership may be difficult Corporation - a separate legal entity owned by stockholders Advantages easier to transfer ownership easier to raise funds lower legal liability – no personal liability for stockholders Disadvantages unfavorable tax treatment resulting in higher taxes paid by stockholders The emphasis of this text is the corporate form of business. 1-2
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Study Objective 2 - Identify the Users and Uses of Accounting Information. The purpose of financial information is to provide inputs for decision making. Accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users. The users of financial information fall into two groups--
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Chapter 1 Notes - CHAPTER 1 Introduction to Financial...

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