Accounting : Chapter 1

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Accounting : Chapter 1
2013-11-26 20:34:20

Chapter 1 - Business Decisions and Financial Accounting
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  1. Sole Proprietorship
    • own by one person
    • easy set-up
    • personal liability for business debt
  2. Partnership
    • own by more than one person
    • partner are all liable
  3. Corporation
    • owner are shareholders - are not liable for business debt
    • subject to many regulations
    • separate legal entity
  4. accounting
    a system of analyzing, recording, and summarizing the results of a business activities
  5. management accounting
    work from the inside of the company
  6. Financial accounting
    work from the outside of the company
  7. Accounting Equation
    • assets = liability + shareholder's equity
    • resource owned by the company = resource owed to creditors and to shareholder
  8. Net profit
    revenues - expenses = net profit
  9. Financial Statements
    • prepare in this orderĀ 
    • 1. income statement
    • 2. statement of retained earning
    • 3. balance sheet
    • 4. statement of cash flows
  10. creditors
    anyone to whom money is owed, banks, and suppliers
  11. investors
    shareholders and customers
  12. contributed capital (SE)
    pay in by shareholders
  13. retained earnings (SE)
    earned by the company -> dividends (profit distributed)
  14. incurred
    the activities giving rise to a cost
  15. cost principle
    assets are initially reported on the balance sheet based on their original cost to the company
  16. creditor main interested in?
    • 1. is the company making enough to paid their loan - through cash flow
    • 2. does the company have enough assets to cover their liability
  17. 2 fundamental characteristic financial information to be judge useful require?
    • relevance and faithful representation
    • they are comparable, verifiable, timely, and understandable