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FSU - ACG 2021 - ACG Week 2 Notes - Class Notes

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FSU - ACG 2021 - ACG Week 2 Notes - Class Notes

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background image ACG2021 Read the chapter, please do it. The book will answer everything for you, the notes aren’t 
enough. Don’t fly buy with “yeah it looks familiar”. Read before, quiz yourself? Can you 
write it down? Quiz yourself on the learning objectives, read the book before so you know what’s up. Do the quizzes several times, do the exercises in the book. Chapter 1: Introduction to Financial Statements Learning objectives:  o Describe the primary forms of business organization.  o Identify the users and uses of accounting information  o Explain the three principal types of business activity.  o Describe the content and purpose of each of the financial statements. 
o Explain the meaning of assets, liabilities, and stockholders’ equity, and state the 
basic accounting equation.  o Describe the components that supplement the financial statements in an annual  report.  Forms of Business Organization o Sole Proprietorship:  Simple to establish Owner controlled Tax advantages o Partnership Simple to establish Shared control  Broader skills and resources Tax advantages o Corporations Easier to transfer ownership Easier to raise funds No personal liability A corporation is an incorporated business entity that has filed articles of incorporation in 
a state of domicile. 
o Advantages of a Corporation: Can attract large amounts of capital investment  Allows for an easy transfer of ownership Can attract professional management Provides stockholders with limited liability Survives the death of its 
owner(s) (continuity of life) 
o Disadvantages of a Corporation:  Corporations are subject to more government regulations  Shareholders can have difficulty knowing whether management is making  Week 
background image decisions in shareholders’ best interests  Corporations are subject to income taxation (Double taxation)
Definition of Accounting  o Accounting is the information system that identifies, records, and communicates  the economic events of an organization to interested users. o An economic event that doesn’t get recorded is pocketed money.  o Conveys the information of the company, to everyone.  o Users can be divided in two groups:  Internal users: people inside the company, anyone employed by that 
External users: people outside the company, a bank would be considered 
o The purpose of accounting, and in particular financial accounting, is to provide  economic information as inputs for decision making by users of the information.  o Users and Uses of Financial Information Internal Users:  ­ Marketing  ­ Management
­ Finance
­ Human Resources External Users: ­ Banks
­ Share/stock holders
­ Creditors  ­ Investors o Ethics in Financial Reporting: United States regulators and lawmakers were very concerned that the 
economy would suffer if investors lost confidence in corporate accounting 
because of unethical financial reporting.  Fraud/Financial Scandals ­ Enron: energy company that overpriced and would hide information because  the accountants suck. Arthur Anderson was the worst.
Effective financial reporting depends on sound ethical behavior.  Congress passed  Sarbanes­Oxley Act of 2002.  o The Sarbanes­Oxley Act resulted in:  1. Top management must now certify the accuracy of financial information. 
2. Penalties for fraudulent activity was increased. 
3. Independence of auditors was increased. 
4. Increased oversight by the board of directors must occur, including the 
board’s selection and supervision of the independent auditor.  ­ they now have to rotate teams every 7 or so years.        Business Activities o Three types of cash flow activity: Financing 2
background image Investing Operating o Financing Activities: Primary sources of outside funds: ­ Borrowing money (debt financing) 1. Amount owed are called  liabilities 2. Party to whom amounts are owned are  creditors 3. Notes payable  and  bonds payable  are different types of  liabilities. ­ Issuing (selling) shares of stock for cash 1. Payments to stockholders are called dividends. o Investing Activities Purchase of resources a company needs to operate. 1. Computers, delivery trucks, furniture, buildings (property,  plant, and equipment. 2. Resources owned by a business are called  assets 3. Investments are another example of an investing activity. o Operating Activities Revenues­Amounts earned from the sale of products (e.g., sales revenue, 
service revenue, and interest revenue).  Opposite of expenses.
Inventory­Goods available for sale to customers.  Receivables­Right to receive money from another party(e.g., Accounts 
receivable are owed by customers; interest receivable is owed by debtors). 
Expenses ­ cost of assets consumed or services used. (e.g., cost of goods 
sold, selling, marketing, administrative, interest, and income taxes 
expense). Privilege of borrowing money
Liabilities arising from expenses and represent amounts owed to another 
party (e.g., accounts payable, interest payable, wages payable, sales taxes 
payable, and income taxes payable).  Net income – the excess of revenues over expenses.  Net loss – the excess of expenses over revenues.  Financial Statement Basic Equations o      Income Statement: Revenues – Expenses = Net Income o      Statement of Stockholders’ Equity: Beginning Equity + Owner Contributions + Net Income
 – Dividends = Ending Equity
o      Balance Sheet: Assets = Liabilities + Equity o      Statement of Cash Flows Cash Inflow – Cash Outflow = Net Cash Flow Four Financial Statements: 1. Income Statement: shows revenues and expenses made in a specific time period,
expressed as net loss or net income.

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School: Florida State University
Department: Accounting
Course: Financial Accounting
Professor: Ronald Pierno
Term: Summer 2015
Tags: Accounting, business, Math, ACG, 2021, ACG2021, finance, and finantial
Name: ACG Week 2 Notes
Description: This covers Chapter 1 and 2.
Uploaded: 01/22/2018
9 Pages 30 Views 24 Unlocks
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