ACC 131 Ch.1
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ACC 131 Ch.1
accounting 131 chapter 1
Identifying, measuring, recording, and communicating financial information about a company so decision makers can make decisions.
Controlled by owner
Access to the resources and skills of partners
Easier to raise money
Easier to transfer ownership
More complex to organize
Business owned by one person
Usually small, local businesses
Owner is responsible for the debt of the business
Formed/dissolved at the wishes of the owner
Owned jointly by 2 or more individuals
Professional practices and law firms
Increased access to financial resources and individual skills
Dissolved when any partner leaves, but remaining partner can form new partnership
Organized under the laws of a particular state
Owned by one or more stockholders
Able to raise large amounts of money
What are financing activities?
Obtaining funds to start a business (from owners or creditors)
Operating the business to earn a profit
Buying assets which are used to generate revenues
2 types of financing that companies use to obtain funds
Issuing stock (stockholders' equity) or borrowing money (creditors)
The obligation to repay a creditor.
What are investing activities commonly referred to as?
Property, plant, and equipment
The increase in assets that results from the sale of products or services.
The cost of assets used, or the liabilities created, in the operation of the business.
When revenue is greater than expenses
When expenses are greater than revenues.
Name the 4 types of financial statements.
Retained Earnings Statement
Statement of Cash Flows
Reports the resources (assets) owned by a company and the claims against those resources (liabilities and stockholders' equity) at a specific point in time.
Reports how well a company has performed its operations (revenue, expenses, and income) over a period of time.
Retained Earnings Statement
Reports how much of the company's income was retained in the business and how much was distributed to owners over a period of time.
Statement of Cash Flow
Reports the sources and uses of a company's cash over a period of time.
Who has the power to set accounting rules for publicly traded companies?
Securities and Exchange Commission
Generally accepted accounting principles (GAAP)
Common set of rules and conventions, developed to guide the preparation of financial statements
List some current assets.
Other current assets (a 'catch-all' category)
Similar to short-term investments except for the duration of holding; they can include land and buildings not currently used in operations.
Property, pland and equipment
Includes tangible productive assets used in operations, like land, buildings, equipment, and furniture.
Lack physical substance and include patent, trademarks, copyrights and goodwill.
Obligations that will be satisfied, through the payment of cash or by providing goods or services, within one year or the operating cycle, whichever is longer.
Give examples of some liabilities
Income taxes payable
Obligations that will require payment beyond one year or the operating cycle.
2 common examples of long-term liabilities.
An obligation to repay cash borrowed at a future date
A form of an interest-bearing note payable issued by corporations in an effort to attract a large amount of investors.
What 2 things make up stockholders' equity?
The accumulated net income of a company that has not been distributed to owners in the form of dividends.
The owners' contributions of cash and other assets to the company.
The ability to pay obligations as they become due.
The relationship between current assets and current liabilities helps determine this.
2 ways to measure liquidity
Working capital and current ratio equations.
Working capital equation
Working Capital=Current assets-current liabilities
Current Ratio equation
Current Ratio=Current Assets /Current Liabilities
The increase in assets that result from the sale of products or services
The cost of resources used to earn revenues during a period.
reports the results of a company's operations-the sale of goods and services and the associated cost of operating the company-for a given period.
Single-step income statements
Have only 2 categories: total revenues and total expenses
Multiple-step income statements
Provide classifications of revenues and expenses that financial statement users find useful.
Gross Margin (how to find it)
Gross Margin=Net sales-Cost of Goods sold
Income from operations (how to find it)
Gross Margin-Operating expenses
Net Income (how to find it)
Net Income=Income from operations- (Nonoperating Revenues-expenses)
Net Profit Margin
Company's ability to generate profit.
Net Profit Margin equation
Net Profit Margin=Net income/sales revenue
Difference between directly and indirectly contributing capital
: Through purchases of common stock from the company
: By the company retaining some or all of the net income earned each year rather than paying it out in dividends.
Cash flows from operating activities
Any cash flows directly related to earning income. Includes cash sales and collections of accounts receivable, as well as cash payments for goods, services, salaries, and interest.
Cash flows from investing activities
Any cash flow related to the acquisiton or sale of investments and long-term assets such as property, plant, and equipment
Cash flows from financing activities
Any cash flow related to obtaining capital of the company. This category includes the issuance and repayment of debt, common stock transactions, and the payment of dividends.