ACCT 2001 Lecture : Acct Notes
Acct 8/25/2016 5:23:00 PM
Chapter 1
Forms of Business Organization
• Sole proprietorship
o Simple to establish
o Owner controlled
o Tax advantages – refer to partnership
• Partnership
o Simple to establish
o Shared control
o Broader skills and resources
o Tax advantages- same as sole prop.
▪ The owners are seen as the same even though they
keep their personal finances separate. Whatever the
business makes it is the same of whatever the person
makes. If it is more they split it uo
▪ The advantage is whatever profits the business makes
so you only pay taxes one time on your profits- it goes
to the owners personal tax return
▪ Not different in the eyes of tax laws
• Corporation
o Easier to transfer ownership
o Easier to raise funds
o No personal liability
o No tax advantage
▪ Completely separate from the corporation
• LLC
o Limited liability corporation
o If you form an LLC and someone sues you they cannot come
after you personally they only go after the business
o Best of both worlds
o Plus you are only taxed once like partnership or sole prop.
Internal Users
• People who work for the business
o Finance
o Marketing
o Human Resources
o Management
External Users
• People outside the business that still need to know the financial
situation
o Investors
o Creditors
Ethics in Financial Reporting** One question on exam
• Congress passed Sarbanes-oxley Act.
• Know about me
All business are involved in three types of activity
• Financing
• Investing
• Operating
• The accounting information system keeps track of the results of
each of these business activities
Financing Activities
• Borrowing money
o Amount owed are called liabilities
o Party to who accounts are owed are creditors
o Notes payable and bonds payable are different type of
liabilities
▪ Notes
Financial institution like bank from the loan
▪ Bonds
Loan from the general public
• Issuing ( selling) shares of stock for cash (equity)
o Common stock is the term used to describe the amount paid
by stockholders for shares they purchase
o Payments to stockholders are dividends
Investing Activities
• Purchase of resources a company needs to operate
o Computers, delivery trucks, furniture, buildings
o Resources owned by a business are called assets
o Investments are another example of an investing activity
o They are investing in themselves
o Something of value that they own that’s going to produce
future value
Operating Activity
• Once a business has the assets it needs, it can begin its operations
o Revenues
▪ Amounts earned from the sale of products and other
sources ( sales revenue, service revenue, and interest
revenue)
o Inventory
▪ Goods available for sale to customers
o Accounts receivable
▪ Rights to receive money from a customer as the result
of a sale.
▪ Money that we are going to receive in the near future
that we are owed because we sold something
o Expenses
▪ Cost of assets consumed or services used ( cost of
goods sold, selling, marketing, administrative, interest ,
and income taxes expense
o Liability arising from expenses included accounts payable,
interest payable, wages payable, sales taxes payable, and
income taxes payable
o Net income
▪ When revenues exceed expenses
▪ Spent less than we made and made a profit
o Net loss
▪ When expenses exceed revenues
▪ Spent more than we made
▪
1. Cost of renting property.
2. Truck purchased.
3. Notes payable.
4. Issuance of ownership shares.
5. Amount earned from providing service.
6. Amounts owed to suppliers.
1. Expense.
2. Asset.
3. Liabilities.
4. Common stock.
5. Revenue.
6. Liabilities.
