Accounting Chapter One Flashcards
What do investors do
Decide whether to invest in stock
What do creditors do
Decide whether to lend money
What do customers do
Decide whether to purchase products
Supplier
Decide the customers ability to pay for supplies
Managers
Decide production and expansion
Employees
Decide employment opportunities
Competitors
Decide market share and profitability
Regulations
Decide on social welfare
Tax authorities
Decide on taxation policies
Local communities
Decide on environmental issues
The two functions of financial accounting are
-To measure Buisness activities of a company
-to communicate those measurements to external parties for decision making purposes
Financing activities=
Transactions the company has with investors and creditors
Investing activities
Transaction involving the purchase and sale of resources that are expected to benefit the company for several years.
Operating activities
Transactions that relate to the primary operations of the company. Revenues and expenses operating a Buisness
Types of Buisness entities
Corporation-
Sole proprietorship -
Partnership-
Corporation- separate entity from the owners. Limited liability. Double taxation. Corporate earning then in divided payment
Sole proprietorship- Buisness owned by a single individual NOT separate
Partnership- Buisness owned by 2 or more individuals. NOT separate
Assets
Resources of a company cash , equipment, inventory, buildings, land
Liabilities
Amounts owned by a company. Accounts payable, note payable
Shareholder equity
Claims against company resources by the owners. Last in line. Stock account retained earnings
Assets - liabilities
- earnings go to share holders
Income statement
Revenues-
Expenses-
Net income -
Dividends-
Revenues- sales of a product or service
Expenses- cost of generating the company revenues
Net income- the difference between revenues and expenses
Dividends- cash payments to shareholders from the earnings of a company NOT AN EXPENSE
Financial statements
Communicate to those outside the company what is going on inside the company
Income statement accounting equation
Income statement - revenues - expenses = net income
Statement of stockholders equity accounting equation
-Summarizes changes in stockholder equity
-Stockholders equity= stock + retained earnings
-retained earnings + net income - dividends = ending retained earnings
- dividends are not an expense
Balance sheet accounting equation
- financial position of a company at a point in time
:Assets - liability’s = shareholders equity
Statement of cash flows equation and definition
Look at cash payments and receipts over a period (year) CASH IS KING
*operating - revenue and expenses
*investing - long term assets
*financing- stock and dividends
