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Financial Act Chpt 1 Notes - pw w Chapter 1 Accounting and...

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pw w Chapter 1 Accounting and the Business Environment What is accounting? Accounting is an information system that measures, processes, and communicates financial information about an identifiable economic entity. It is the link between business activities and decision makers. Financial Accounting: Used by external decision makers, communicates financial information (financial statements), highly summarized, must adhere to Generally Accepted Accounting Principles (GAAP). Managerial Accounting: Used by internal decision makers only, includes more detailed information, specific to management's needs, does not have to follow GAAP. Main Goals of Businesses: Profitability: The ability to earn enough income to attract and keep investment capital • Liquidity: Have enough cash available to pay debts when they are due Forms of Business Organizations: • Sole Proprietorship: only one owner, controlled apart from his or her personal interests but not a separate legal entity, is not incorporated. • Partnership: two or more owners, controlled apart from the partners personal interests but not a separate legal entity, is not incorporated. • Corporation: a business unit that is granted a state charter and is recognized as a separate legal entity, owners are stockholders but do not generally run the day to day operations Comparative Features of the Forms of Business Organizations Sole Proprietorship Partnership Corporation Not a separate Legal status Not a separate entity entity Separate entity Partner's personal Limited to Owner's personal resources at investment by Risk of ownership resources at stake stake the corporation Limited by Limited by choice or choice or death Duration of life death of owner of any partner
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