FA Chapter 1 Flashcards
Investor
Contributes Money to business (maybe get dividends)
Creditor
Lender plus interest
Four Basic Financial Statements
- Balance Sheet
- Income Statement
- Statement of Retained Earnings
- Statement of cash Flows
A=
L+SE
Assets=
Liabilities+Stockholders Equity
Accrual Account
Revenue When It’s Earned, Expense When It’s Incurred
GAAP
Generally Accepted Accounting Principles
Securities and Exchange Commission (SEC)
has been given broad powers to determine measurement rules for financial statements.
Financial Accounting Standards Board (FASB) is NOT
Part of the government
Financial Accounting Standards Board (FASB)
the body to formulate GAAP.
What do independent auditors do?
ØAuditors express an opinion as to the fairness of the financial statements.
ØIndependent auditors have responsibilities that extend to the general public.
ØThe PCAOB issues detailed auditing standards that auditors must follow.
The American Institute of Certified Public Accounts
requires that all members adhere to a professional code of ethics.
Sole Proprietorship
owned by a single individual.
Partnership
owned by two or more individuals.
Corporation
ownership represented by shares of stock.
Advantages of Corporation
Limited liability, Continuity of life, Ease of transfer of ownership, Opportunity to raise large amounts of money
Disadvantages of a corporation
Double Taxation
Balance Sheet
reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time.
Income Statement
reports the revenues less the expenses of the accounting period.
Statement of Retained Earnings
reports the way that net income and distribution of dividends affected the financial position of the company during the accounting period.
Statment of Cash Flows
reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.
Contributed Capital=
Common Stock
Common Stock=
Contributed Capital
Rent expense includes…
months not yet paid for
