Week 1 Notes: Chapter 1
Week 1 Notes: Chapter 1 Accy 206
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This 4 page Class Notes was uploaded by Khaylian Leflore on Friday August 28, 2015. The Class Notes belongs to Accy 206 at Northern Illinois University taught by Mark Hogan in Fall 2015. Since its upload, it has received 49 views. For similar materials see Introduction to Financial Accounting in Accounting at Northern Illinois University.
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Date Created: 08/28/15
Week 1 Notes Chapter 1 Intro to FS Key Terms Sole Proprietorship 1st of the 3 business organizations They are simple to establish owner controlled and they have tax advantages Partnership 2 of the 3 business organizations They are simple to establish broader skills and resources shared control and tax advantages Corporation Last of the 3 business organizations It is easier to transfer ownership easier to raise funds and there is no personal liability However there are no tax advantages Instead there is a double tax where a portion of the earnings get sent to the stock owners and the taxes are doubled Accounting Information System keeps track of the results of the 3 business activities operating investing and financing Operating activities activities that can begin once a business has all the assets it needs They include Revenues amount earned from the selling of products Inventory goods available to be sold to customers Accounts receivable right to receive money from a customer as the result of a sale Expenses cost of assets consumed or services used Liabilities arise from expenses They include accounts payable interest payable and taxes payable Net income aka profit when revenues are greater than expenses Net loss when expenses are greater than revenues Investing activities activities that can begin when a company purchases all the resources it needs to operate Financing activities 2 primary sources of outside funds 1 Debt financing borrowing money 2 Selling shares of stock Income statements 1St of the 4 financial statements Reports revenues and expenses for a specific period of time which will result in the net income or loss of the company Past net income helps predict future net income Retained earnings statements 2nd of the 4 financial statements Shows amounts and causes of changes in retained earnings during the period The time period is the same as that covered by the income statement and users can also evaluate dividend payments Balance sheets 3rd of the 4 financial statements Reports assets and claims to assets at a specific point in time It is important to remember that assetsliabilities stockholders equity The assets are listed first then liabilities and finally the stockholder s equity Statement of cash ows last of the 4 financial statements Answers 3 questions 1 where did cash come from during the period 2 how was cash used during the period 3 What was the change in the cash balance during the period Annual report a comprehensive report on a company s activities throughout the year They always include financial statements notes to the financial statements management discussion and analysis and the auditor s report Management Discussion and Analysis MDampA covers the company s ability to pay nearterm obligations the ability to fund expansion and operations What the company will look like in the future and its results of operations profitability Management must find What affects these factors by highlighting favorable or unfavorable trends and find significant events and uncertainties Notes for the Financial Statements side notes that clarify the financial statements and provide additional detail The most essential thing necessary for understanding a company s operating performance and financial position Auditor s report the auditor s opinion as to the fairness of the presentation of the financial position and results of operation and their conformance with the Generally Accepted Accounting Principles GAAP Key Ideas of the Chapter 0 Assets Liabilities Equity 0SarbanesOXley Act of 2002 SOX 1 Made a law forcing management to certify their financial statements 1 Management must issue a report on Internal Control Over Financial Reporting ICFR 1 Created the Public Company Accounting Oversight Board PCAOP who check on the auditors 0 2 auditor s opinions 1 fairness of the presentation of the financial position 2 results of operation and their conformance with GAAP 0 4 Financial Statements with interrelationships 1 Net income income statement is needed to determine the ending balance in retained earnings retained earnings statement 1 Ending balance in retained earnings is needed in preparing the balance sheet 1 Cash on a balance sheet ending cash on cash ow statements 0 Retained earnings roll forward 0 Dividends are NOT an eXpense 0 3 types of business activities operating investing financing OIF 0 Components of an annual report 0GAAP IFRS FASB
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