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ACT 205 Week 2 Notes (includes LS Notes, Lecture Notes, and Formulas)

by: Rachel Rheingold

ACT 205 Week 2 Notes (includes LS Notes, Lecture Notes, and Formulas) ACT 205

Marketplace > Colorado State University > ACT 205 > ACT 205 Week 2 Notes includes LS Notes Lecture Notes and Formulas
Rachel Rheingold
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The material covered in this set of notes are notes taken from the learn smart reading, additional information from class lecture, and all the accounting formulas that were discussed in Chapter 1. ...
Fundamentals of Accounting
Sally Plasterer Whitney
Class Notes
Accounting, formulas, financial statements, Auditors, investors, financial accounting, formuals, financial, Statements, Colorado State University




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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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