Accounting 9/5/2013

3 Forms of Business organization:

-Sole Proprietorship: Simple to establish, owner controlled, tax advantages
-Partnership: Simple to establish, shared control. Broader skills and resources, tax
advantages
-Corporation: Easier to transfer ownership, easier to raise funds, no personal liability
Uses of Financial information
Internal Users:
-Marketing: What price should Apple charge for an ipod to maximize the companys net
income?
-Management: Which product line is most profitable? What should be taken out?
-Finance: Can dividends be paid to stockholders?
-Human Resources: Can we afford to give employees a raise? Who should we hire/fire?
External users:
-Creditors: Will debts be paid back?
-Investors: Earning good income?
Ethics: Effective financial reporting depends on sound ethical behavior
Sarbanes Oxley Act of 2002: regulations required management personally liable for
statements, greater internal controls.
All businesses are involved in three types of activity
-Financing
-Investing
-Operation
2 primary sources of outside funds are;
1)Borrowing money (debt financing)
2)Issuing (selling) shares of stock for cash

Investing activities
Purchase of operations
Operating Activities
-Revenues: income that the company receives from its normal activities
-Inventory: companies on hand possessions
-Accounts: claim for payment to a business by its clients/costumers for goods supplied
-Expenses: outflow of money from the company
-Liabilities: amounts owed to lenders and suppliers
-Net income: when revenues are greater than expenses
-Net loss: when expenses are greater than revenues
4 Financial statements: Companies prepare four financial statements from the summarized
accounting date all but balance sheet are set periods (periods always have the same end date)
Balance Sheets show up to a point and time every period. One number always ties to anther on
these statements.
Income Statement
Shows net incomes and losses after revenues and expenses
Retained Earrings Statement
Shows what the companies spend the earnings on. (Dividends and common are included
in this statement)
Balance sheet
Shows: Assets =Liabilities + Stockholders Equity
Assets (what the company owns) at the top
The total assets must equal total liabilities and stockholders equity

Statement of cash flows

Where did cash come from during the period
How was cash used during the period

What was the change in the cash balance during the period
All companies produce an annual report which includes
-Financial statements
-Management discussion and Analysis (MD&A)
Writes an assessment of liquidly, can it pay its creditors and fund expansion? It acts as a
narrative to the plan of the company.
-Notes to the financial Statements
Clarify the financial statements and provide additional detail
-Auditors Report
Tells the creditor/investor if the information is presented fairly and builds confidence in
the statements.
International Financial Reporting Standards (IFRS): ongoing attempt to create world wide
standard.