CH1: CH 1: Financial Statements and Business Decisions Flashcards
sole stockholders=
owners
2 sources of fnan resources
creditors & stockholders
Creditors (ex, and what they hope for)
-lenders (banks)
-hope for money through interest
stockholders (ex, and what they hope for)
-ppl who buy stock in the company
-hope to earn cash through dividends
-hope for higher future stock prices
internal decision makers characteristics
-ppl who run the company (ex managers)
-use managerial accting reports
-Need info about companies activities to manage operating, investing, and financing activities
external decion makers characteristics
-people who evaluate the companu (creditors or stockholders)
-receive fnan accting reports
-Need info abt the sactivities to asses if the company is able to pay back its debts with interests/dividends
4 basic fnan statements (in order)
-income statement
-statement of stockholders equity
-balance sheet
-statement of cash flows
balance sheet characterstics
-reports fnan position at a point in time
-uses acct equation
-assets, liabilities, stockholders equity (common stock +retained earnings)
acct equation
A=L+SE
income statement characterstics include definitions
-reports revenues less expenses during acct period
-revenue: resources esrned from delivering goods/services
-expenses: resources incurred/used to earn revenue
-net income: net profit
statement of stockholders equity charactertistics
-reports changes in the stockholder equity for acct period
-balance of commonstock/retained earnings
+ net income/stock issueances
-dividends
=ending retained earnings
statement of cash flows
reports inflows and outflows of cash during acct peirod in operating, investing, and financing
relationship amng fnan statements
income statement → use net income in statement of retained earnings→use retained earnings in balance sheet
time period for fnan statements
-end of the year (for year ended/annual)
-quarterly (for quarter ended/quarterly)
-monthly (for month ended, monthly)
fnan statements headings include
-business name (ulta)
-title of the statement (balance shet)
-date (for month ended)
-unit of measure (millions)
fnan staement formatting rules
-monetary unit sign by first dollar amt in the group
-assets ordered by easyness of conversion to cash
-liabilities listed by maturity
-single underline under last item in group and double underline under totals
GAAP
-rules that determine the content and rules of fnan statements
-suitable criteria for conducting fnan statement audit
SEC
determine measurement rules for financial statements for publicly traded companies
FASB
The responsibility to formulate GAAP.
IFRS is issued by
ISAB
objective of fnan statements
-provide fnan info that is useful to existing/potential investors, lenders, and other creditors
useful info includes
-info that is relevant
-a Faithful representation of company activities
-Timely, verifiable, comparable, understandable
what is ethics and what is the three step process for making ethical decions
-standard of conduct for judging right and wrong
-identify benefits of a decision
-identify alt course of action
-choose action that u would like others to see reported
primary responsibily for the info in fnan statements lies with…
management
3 steps to assure investors that records are accurate
-1-maintain a system of internal controls over records & assets
2-they should hire outside auditors to audit fairness of fnan statements
3-they should form a committee of the board of directors to oversee the integrity of listed safeguards
sole properitorship vs partnership
-1 person
full liability
Self employment tax, personal tax
-Owned by 2+ persons
Full liability
Self employment tax, personal tax
LLC
1+
Limited liability
Self employment tax, personal tax or corporate tax
C corp:
S corp:
B corp:
Non-profit:
-1+, limited liability, corporate tax
-1+ but not over 100, limited liability, personal tax
-1+, limited liability, corporate tax
-1+, limited liability, tax exempt but profits cant be distributed
say land doubles is this reported on fnan sheets
no, only when it is sold. balance sheet stays the same as when the land was first bought
assets are initially recorded as
the total cost incurred to acquire it
characteristics are needed in order for information to be useful?
relevant and a faithful representation
income statement including taxes
revenues
-expenses
=earnings before inc tax
(income tax)
=net earnings
disadnavtage of coorperation
double taxation
Operating
Selling inventory to customers
Paying employee salaries
Paying income taxes
Investing
Purchasing equipment
Proceeds from disposal of property and equipment
Financing
Issuing stock to shareholders for cash
Repayment of bank loan
Paying dividend
Operating
Selling inventory to customers
Paying employee salaries
Paying income taxes
