Essay on Accounting 2001 Notes

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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.

Forms of business organization:

Name/Definition | Advantages | Disadvantages | 1.Sole Proprietor | Simple to setup & controlTax advantages | Personal liability | 2.Partnership | Simple to establish &share resources Tax advantages | Personal liability | 3.Corporation(Main focus in class) | No personal liabilityEasier to raise capitalEasier to transfer interests | Taxes |

Accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users.

Users of accounting information (two categories & examples of each) Type | Examples | 1.Internal | Managers, Supervisors, Officers | 2.External | Investors, Creditors, Regulators(Government) |

*All use accounting information but have different needs

Effective financial reporting depends on sound ethical behavior.

Recent financial scandals led Congress to the pass the Sarbanes- Oxley Act in 2002.

Key Provisions: * Top management must certify the financial statements * Severe penalties for fraud * Increased auditor duties

Steps in Solving an Ethical Dilemma
1. Recognize the ethical situation & ethical issues involved

2. Identify & analyze the principle elements in the situation

3. Identify the alternatives & weigh the impact on the stakeholders

*Select most ethical alternative

Three types of business activities and examples of each:

Financing Activities:

Two primary sources of outside funds are: 1. _Borrowing Money * Amounts owed are called ___liabilities _. * Party to whom amounts are owed are creditors. * Notes payable and bonds payable are different types of liabilities.

2. _Issuing shares of stock for cash * Payments to stockholders are called _dividends_.

Investing Activities:

Purchase of resources a company needs in order to operate. * Computers, delivery trucks, furniture, buildings, etc. * Resources owned by a business are called __assets__. *(Cash, investments, inventory)

Operating Activities:
Once a business has the assets it needs, it can begin its operations.

* __Revenue___ - Amounts earned from the sale of products (sales revenue, service revenue, and interest revenue). * Inventory - Goods available for sale to customers.

* _Account Receivable__ - Right to receive money from a customer, in the future, as the result of a sale. * _Expenses__- cost of assets consumed or services used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense). * Liabilities arising from expenses include accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable. * __Net Income___– when revenues exceed expenses. * __Net Loss_____ – when expenses exceed revenues

Companies prepare 4 financial statements to communicate financial information to users:

Name | Definition | Components | Date | Income Statement | Reports revenues & expenses for a period of time | Revenue minusExpensesNet Income (Loss) * | Time Span (month, year) | Retained Earnings Statement | R/E is the net income retained in the corporation. Statement shows the in the R/E. | Beginning R/E + Net Income - Dividends= End R/E | Time Span | Balance sheet | Reports assets, liabilities, and stockholders equities at a specific point in time |
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