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Chapter 1 Notes

by: Victoria Rousseau

Chapter 1 Notes ACCT 151

Victoria Rousseau
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About this Document

First couple pages of the Chapter 1 Textbook Notes
Introduction to Financial Accounting
Joseph Manzo
Class Notes




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This 3 page Class Notes was uploaded by Victoria Rousseau on Friday August 26, 2016. The Class Notes belongs to ACCT 151 at Lehigh University taught by Joseph Manzo in Fall 2016. Since its upload, it has received 7 views. For similar materials see Introduction to Financial Accounting in Accounting at Lehigh University.


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Date Created: 08/26/16
Chapter 1: Financial Statements and Business Decisions *Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers)* *Identify the role of generally accepted accounting principles (GAAP) in determining financial statement content and how companies ensure the accuracy of their financial statements.* UNDERSTANDING THE BUSINESS Stockholders = An individual, group, or organization that holds one or more shares in a company, and in whose name the share certificate is issued. (Also called shareholder)  Creditors are more wiling to lend and stock prices usually rise when creditors and investors expect the company to do well in the future  Managers (Internal decision makers) need information about the company’s business activities to manage the operating, investing, and financing activities of the firm.  Stockholders and creditors (External decision makers) need information about these same business activities to assess whether the company will be able to pay back its debts with interest and pay dividends. Accounting = A system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers.  Financing Activities: borrowing or paying back money to lenders and receiving additional funds from stockholders or paying them dividends.  Investing Activities: buying or selling items such as plant and equipment used in the production of beverages.  Operating Activities: the day-to-day process of purchasing raw tea and other ingredients from suppliers, manufacturing beverages, delivering them to customers, collecting cash from customers, and paying suppliers. THE FOUR BASIC FINANCIAL STATEMENTS: AN OVERVIEW 1. On its balance sheet, the company reports the economic resources it owns and the sources of financing for those resources 2. On its income statement, the company reports its ability to sell goods for more than their cost to produce and sell 3. On its statement of stockholders’ equity, the company reports additional contributions or payments to investors and the amount of income the company reinvested for future growth 4. On its statement of cash flows, the company reports its ability to generate cash and how it was used  The four basic statements can be prepared at any point in time (such as the end of the year, quarter, or month) and can apply to any time span (such as one year, one quarter, or one month) Balance Sheet (Statement of Financial Position) = Reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time Structure: The Heading 1. Name of the entity 2. Title of the Statement 3. Specific Date of the Statement 4. Unit of Measure Accounting Entity = the organization for which financial data are to be collected Basic Accounting Equation (Balance Sheet Equation) Assets = Liabilities + Stockholders’ Equity Assets = Economic resources (cash, inventory, buildings) Liabilities = Financing from creditors (amounts owed to suppliers, employees, banks) Stockholders’ Equity = Financing from stockholders (common stock, retained earnings)  Stockholders’ equity indicates the amount of financing provided by owners of the business and reinvested earnings.


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