Chapter One Notes
Chapter One Notes 201
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Date Created: 09/16/14
MGA 201 Professor Anderson Chapter One Notes Business Decisions and Financial Accounting 0 Learning Objective 1 Describe various organizational forms and business decision makers 0 Organizational forms o Sole proprietorship business organization is owned by ONE person owner is liable for debts of business o Partnership business organization owned by TWO or MORE people each partner liable for debts o Corporation a separate entity from both a legal and accounting perspective owners of corporations are not responsible for debts 0 Accounting system of analyzing recording summarizing and reporting the results of a business s activities 0 Learning Objective 2 Describe the purpose structure and content of the four basic financial statements 0 Basic Accounting Equation I Assets resources owned by the company I Liabilities resources owned by the creditors I Stockholders Equity resources OWED to the stockholders 0 Separate Entity Assumption requires that a business39s financial reports include only the activities of the business and not those of its stockholders 0 Assets resources controlled by the company that have measurable value expected to provide future benefits to the company o Company owns o Ex Accounts Receivable Prepaid Rent 0 Liabilities amounts owed by the business to creditors o Company OWES o Ex Accounts Payable Notes Payable 0 Stockholders Equity owners claim to the business resources o Ex Contributed Capital paid in by stockholders o Ex Retained Earning earned by the company I Business starting retained earning 0 o Revenues sales of goods or services to customers I Measured at the amount the business charges the customer o Expenses costs of business necessary to earn revenues including wages to employees advertising insurance and utilities 0 Dividends distributions of a company39s earnings to its stockholders as a return on their investment o NOT and expense 0 Financial Statements prepared in this order o Income statement o Statement of Retained Earnings o Balance Sheet o Statement of Cash Flows 0 The Income Statement IS o Records profitability over PERIOD of time The Income Statement PIZZA AROMA INC Income Statement For the Month Ened September 30 2013 Revenuest za Revenue 1I0 Expenses Supplies Expense 500 Wales Expense 200 ent Expense 150 Utilitlies Experlse 50 lnstlranse Elxpense 30 Adxertlising Expense W lnceme Tax Expense 50 Kquotquot NIeIt lllllflll nlll 2 ID 0 The Statement of Retained Earnings SRE o Reports the way that net income and the distribution of dividends affected the financial position of the company during the period The Statement of Retained Earnings PIZZA AROWIA lNC Statement if Retained Earnings T For the Month Endedl Sep ten1ber3elJ 2013 Retained Earnings Slept 11 20713 0 ii Adltl 2003 Subtract lliwzlends 1 UOD Retained Earnings Sept 305 2013 5 10100 0 The Balance Sheet BS o Reports at a POINT IN TIME I What a business owns assets I What it owes to creditors liabilities I What is left over for the owners of the company39s stock stockhoders equny V IN P 320 NC The Balance Sheet X PlZ2A ARIDIWA IINIC 1alan ce Sheet Reports at a point in time quot ten1her30 20113 V A 1 A gts 1 What a business owns 33 14ccc 39aSsets lg ggliiiggs Receivable llZIIl JIIIIl 3lZIIxr JIIIIl Equipment K K 3 What it owes to Tstal Assets crediitoirs liabilities Liahillities Acccurlts Pe3ralie What is lelit over for the ffi39jgf 39i5 owners of the V b 5 Stoclchclders EiquIt r company 5 stock Bcntrilauteczl Genital 395tDquotckh390lder55 equrty rman Stockholders Equity Tetal Liabilities and Stockholders Equi BASIC ACCOUNTING EQUATION Assets Lialaillities l Stnckhroldersr Equity 391391F I Liabilities must be paid back I Assets should be GREATER than liabilities 0 Statement of Cash Flows SCF o Records change in cash of company PIZZA AROMA IINC Summanzes Statement at Cash Flcwe p h 3 Fur the Mo Ended S eptennlb er 3 2quot lI g I V M V V Vmm PEV VVV businees 5 Cash received frcm LIEUJITIEFS 111000 0pequotatng Cash paid tc emplcveee and suppliers 6 000 V yW V V V Cash Provided by Dperatin Activities 5 000 Investln and Cash used to buy equipment 40 000 flnanclng Cash Used in Inveetiri Activities 40 000 R I 39 I 39 39EIF l39lla ccrntribtlted by etrdckhcr dl ere 30000 cau d Cash dividends paid td stdclholders 1000 I V V Cash bcrrcwed frcrn the lcenk 20 000 Ga5h allance Cash Prcrvided by Financing tctivitiee 00 000 V H p I 1 V Chan e in Cash II Il D0 L change aver I pt12Dr13 I F V39 I V A 2 Sept 30 2013 1lIlIlul aquott39 a39 H j period of tImeV 39l 3913 0 Beginning Cash CF Operating Activities CF Investing CF Financing Ending Cash Balance 0 Relationships among the Financial Statements o Net Income flows from the Income Statement to the Statement of Retained Earnings o Ending Retained Earnings flows from the Statement of Retained Earnings to the Balance Sheet o Cash on the Balance Sheet and Cash at the End of Year on the Statement of Cash Flows agree 0 Learning Objective 3 explain how financial statements are used by decision makers 0 Using Financial Statements o Creditors I Is the company generating enough cash to make payments on its loans SCF I Does the company have enough assets to cover its liabilities BS o Investors I What immediate return through dividends on my contributions SRE I What is the longterm return through stock price increases resulting from the company39s profits IS 0 Learning Objective 4 Describe factors that contribute to useful financial information 0 Accounting Standards o United States I FASB I GAAP o World I IASB I IFRS