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FSU - ACG 2021 - Financial_Accounting_unit_1.pdf - Study Guide

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FSU - ACG 2021 - Financial_Accounting_unit_1.pdf - Study Guide

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background image Financial Accounting unit 1 Forms of business organization 1. Corporation- a business organized as a separate legal entity owned by  stockholders
Easier  to transfer ownership - Easier to raise funds - No personal liability 2. Partnership- a business owned by two or more people associated as  partners
Simple to establish  - Shared control - Broader skills and resources - Tax advantage 3. Sole proprietorship- a business owned by one person - Simple to establish  - Owner controlled - Tax advantage Accounting- the information system that identifies, records, and 
communicates the economic events of an organization to interested users
- Internal users- marketing, management, finance, and human resources - External users- creditors, investors, and investors.   Sarbanes-Oxley act (SOX)- regulations passed by congress to reduce 
unethical corporate behavior.
All businesses are include in three types of activity-
1. Financing- 1. Borrowing money
Liabilities- amounts owned of debts other obligations Creditors- party to whom amounts are owned  Notes payable & bonds payable are different types of 
                                            2. Issuing (selling) shares of stock for cash Dividends- payments of cash from a corporation to 
its stockholders
2. Investing- purchase of resources a company needs to operate
Property, plant, and equipment - Assets- resources owned by a business - Investments are another example of an investing activity 3. Operating activities- once a business has the assets it needs, it can  begin its operations items commonly affected by operations include
-revenues- amounts earned from the sale of the sale of products
- inventory- goods available for sale to customers
- receivables- right to receive money from another party
- expenses- cost of assets consumed or services used 
- liabilities arising from expenses and represent amounts owned to 
another party 
- net income- the excess of revenues over expenses
background image - net loss- the excess of expenses over revenues  > Financial statements Income statement
Revenues – expenses = net income
Statement of stockholders’ equity 
Beginning equity + owner contributions+ net income – dividends = ending 
Balance sheet (aka basic accounting equation)
Assets = liabilities + equity
Statement of cash flows 
Cash inflows – cash outflow = net cash flow
>the classified balance sheet  Current assets  - Assets that a company expects to convert to cash or use up with one 
year or the operating cycle, whichever is longer
- Common types- cash, investments, receivables, inventories, and prepa - id  Long-term investments  - Investments in stocks and bonds of other corporations that one held 
for more than one year
- Land and buildings not currently being used  - Long-term notes receivables Property, plant, and equipment - Have long useful lives and currently used in operations - Depreciation- allocating the cost of assets to a number of years - Accumulated depreciation- total amount of depreciation expensed thus
far in the asset life 
Intangible assets - Assets that do not have physical substance  - Includes goodwill, patents, copy rights, and trademarks, or trade 
Current liabilities - Obligations the company is to pay within the next year or operating 
- co - mmon examples- accounts payable, salaries and wages payable, notes
payable, interest payable, and income taxes payable
long- term liabilities - obligations a company expects to pay after one year - includes bonds payable, mortgages payable, long-term notes payable, 
lease liabilities, and pension liabilities 
stockholders’ equity - common stock – investments of assets into the business by the 
background image - retained earnings- income retained for use in the business
beg. Re + NI – Div = End Re
>Ratio analysis-expresses the relationship among selected items of financial 
statement data 
profitability ratios- measures the income or operating success of a company 
for a given period of time
liquidity ratios- measures short-term ability of the company to pay its 
maturing obligations and to meet unexpected needs for cash
Solvency ratios- measure the ability of the company to survive over a long 
period o
f time.  Earnings per share (EPS) measures the net income earned on each share of 
common stock
Earning per share= (net income – preferred dividends)/ (average common 
shares outstanding )
Liquidity- the ability to pay obligations expected to become due with in the 
next year of operating cycle
Working capital= current assets- current liabilities
Working capital- the difference between the amounts of current assets and 
current liabilities 
Liquidity ratios- measure the short-term ability to pay maturing obligations 
and to meet unexpected needs for cash
Current ratio = (current assets)/( current liabilities)
Solvency- the ability to pay interest as it comes due and to repay the balance
of a debt due at its maturity 
Solvency ratios- measure the ability of the company to survive over a  long 
period of time
Debt to assets ratio- measures the percentage of total financing provided by 
creditors rather than stockholders.
Debt to assets ratio= total liabilities/ total assets 
Free cash flow- a measurement to provide additional insight regarding a 
company’s cash- generating ability 
Free cash flow= cash provided by operations- capital expenditures- cash 
>The standard- setting environment Generally accepted accounting principles (GAAP)- a set of rules and practices,
having substantial authoritative support, that the accounting profession 
recognizes as a general guide for financial reporting purposes.
>according to the FASB, useful info should possess two fundamental qualities, 
relevance and faithful representation
background image Relevance- if it would make a difference in a business decision Faithful representation- that info accurately depicts what really happened - Complete  - Neutral  - Free from error >enhancing qualities  Comparability- results when different companies use the same accounting 
Verifiable- if independent observer, using the same methods, obtain similar 
Understandability- if it is presented in a clear and concise fashion Consistency- a company uses the same accounting principles and methods 
from year to year 
Timely- on time consistently  >Assumptions in financial reporting  Monetary unit- requires that only those things that can be expressed in 
money are included in the accounting records
Economic entity- states that every economic entity can be separately 
identified and accounted for
Periodicity- states that the life of a business can be divided into artificial time 
“going concern”- the business will remain in operation for the foreseeable 
>Principles in financial reporting  Measurement principles  - Historical cost - Fair value Full disclosure >cost constraint- accounting standard-setters weigh the cost that companies will 
incur to provide the information against the benefit from having the information 
>Accounting information system System of  - Collecting and  - Processing transaction data and  - Communicating financial info to decision makers >Transactions are economic events that require recording in the financial 

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School: Florida State University
Department: Accounting
Course: Financial Accounting
Professor: Ronald Pierno
Term: Summer 2015
Tags: final study guide, financial accounting, and FSU
Name: Financial_Accounting_unit_1.pdf
Description: These notes cover Chapters 1-11 for Patterson's Accounting Class Online for the final
Uploaded: 04/23/2016
19 Pages 165 Views 132 Unlocks
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