ACT 205 Week 2 Notes (includes LS Notes, Lecture Notes, and Formulas)
ACT 205 Week 2 Notes (includes LS Notes, Lecture Notes, and Formulas) ACT 205
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This 11 page Class Notes was uploaded by Rachel Rheingold on Wednesday September 7, 2016. The Class Notes belongs to ACT 205 at Colorado State University taught by Sally Plasterer Whitney in Fall 2016. Since its upload, it has received 111 views.
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Date Created: 09/07/16
Chapter 1:Framework for Financial Accounting Accounting as a Measurement/Communication Process Defining Accounting o Accountingis howbusinessescommunicatewith external and internalpeople like: Creditors Investors o Thereare2 main functionsof Accounting: Keeping recordsofthe company’sactions Communicating thatinformation needed to makedecisions Creditors Investors o Thereare2 external usersofaccountingthat contributeresourcesto a companyare: Creditors– decidewhether to investin stock Investors –decidewhetherto lend money to businesses o Accountantsmeasurethe company’sbusinessandactivitiesand communicatethoserecordsto others MeasuringBusinessActivities o 3 formsofbusinessorganizations corporation–is a legally separateentity fromthe owners advantageof being a corporation o limited liability o legally separatefromthe owners soleproprietorships –a businessownedby1 persononly solepartnerships –a businessownedby2or morepeople o 3 formsofbusinessactivities financing activities – transactionsthecompanyhaswith creditorsand investorslike: issuingstock borrowingmoneyfroma localbank investingactivities –transactionsthecompanymakes to furtherbetter thecompanyand their resourceslike: buyingequipment purchasingland operating activities – transactionsthatrelateto theprimary operationsof thebusinesslikeprovidingproductsandservices like: rent utilities salaries taxes advertising Assets,Liabilities, and StockholdersEquity o Assets-the resourcesacompanyhas Cash Equipment Supplies Inventory 2 partieshaveclaims to thosecompany’sassets creditors Investors o Liabilities – amountsowedto creditors Supplies Employees Utility companies Government(taxes) Liabilities mustbepaid by a specificdate Investorsorownershaveaccesstoanyresourcesofa companynotowed to creditors o StockholdersEquity– ownersclaimsto the resources Stockholdersareowners TheAccounting Equation o ASSETS=LIABILITIES+STOCKHOLDERS EQUITY 2 Theaccounting equation is a fundamentalmodelof business valuation Revenues,Expenses,and Dividends o Wecan calculate a company’sprofitbycomparingits revenuesand expenses o Revenues - theamountsdocumented when a companymakesa sale or providesaserviceto consumers o Expenses- costsof providingthoseproductsand servicesto customers o Revenues +Expenses= Net Income Revenues >Expenses= Net Income(positivenumber) Revenues <Expenses= Net Loss(negativenumber) o When a businesshasa netincome Theprofitcan bedistributed backto thestockholders o OR Keep the profitsforfutureuse Communicating ThroughFinancialStatements o Thereare4 financialstatements Incomestatement Statement of stockholders’equity Balance sheet Statement of cashflows IncomeStatement o Reportscompany’srevenuesandexpenses Revenue> Expense=Net Income Revenue< Expense=Net Loss o Heading on theincome statement Companiesname Title of financialdocument(IncomeStatement) Time period covered 3 Statement of StockholdersEquity o Reportscommon stockand retained earnings Common Stalk+ Retained Earnings=StockholdersEquity o Heading on thestatement of stockholdersequity Companiesname Title of financialdocument(Statement of StockholdersEquity) Time of periodcovered 4 5 Balance Sheet(“Selfie”) o Showsthefinancialposition ofa companyona particular date Justonedaycovered NOTa time period likethe previousstatements o Liabilities + StockholdersEquity=Assets 6 Statement of CashFlows o 3 categoriesreported operating cashflow investingcash flow financialcashflow o money received andmoney paid net cashflowoperating +net cashflow investing+ netcash flowinvesting =total changein cash 7 8 Chapter 1:Rules of Financial Accounting Investorsandcreditorsmake decisionsbasedonfinancial accountinginformation o GenerallyAcceptedAccountingPrinciples(GAAP) UnitedStates o FinancialAccountingStandardsBoard(FASB) o AdministeredbySecuritiesandExchangeCommission’s (SEC) Globally o InternationalAccountingStandardsBoard(IASB) o InternationalFinancialReportingStandards For USA Companies o GAAP are therules o TheFASB makes therules o TheSEC enforces therules Auditors o Trainedpeoplehiredbya companyindependentlyto expresstheir professionalopiniononthecorrectness ofa company’sfinancialstatementslike: Income statement Balancesheet Cashflow Statementofstockholder’sequity ObjectiveofFinancialAccounting o Financialaccountingshouldprovidethefollowing information Make sure it’s usefulto investorsandcreditors Helps predictcash flow Tellsabouteconomicresources claims toresources An EthicalFoundation o Refers to havinga moralcode that isused to help determinebadbehavior o The Sarbanes-OxleyAct(Sox) It providesregulationofauditorsandincreases accountabilityofcorporateexecutives Basicallyit regulatesauditorstomakesure theyare behavingandactingmoral o 2 Chapter 1Formulas AccountingEquation o Assets= Liabilities+Stockholders’Equity Income statementformula o Revenues– Expenses= Net Income StatementofStockholdersEquityformula o CommonStalk Commonstalk+ RetainedEarnings=TotalStockholders’ Equity Beginningbalanceofcommonstalk+ additionofcommon stalk= endingbalance o RetainedEarnings Retainedearnings+ Net Income – Dividends= ending balance o TotalStockholders’Equity+addedcommonstalk+ net income – dividends=endingbalance
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