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Outline three main organizational forms and differences1.
Differentiate between debt financing and equity financing2.
Explain the accounting process, main types, and use of information3.
Identify GAAP, FASB, SEC, IFRS4.
Recognize why audits of financial statements are necessary5.
Identify components of the annual report6.
Sole Proprietorship Partnership Corporation
generally owned by 1 person-
Simple to establish-
Barber shops, auto repair shops,
small retail stores
Business owned by two or
One individual lacks
Broader skills and resources-
Lawyers, doctors, CPAs-
Business owned by
Separate legal entity
Easier to transfer
Easier to raise funds-
No personal liability-
Debt financing Equity financing
Consists of borrowing funds from
individuals or entities called creditors
Requires funds to be repaid with interest-
Rigid repayment schedules-
Interest paid on debt is tax deductible-
Consists of raising funds through owner investment
and selling shares of ownership (stock)
No repayment is legally required though investors
often receive dividends
Dividends paid to investors are not tax deductible-
Funds to Finance Start UpII.
Accounting - the means by which we measure and describe the economic activities of a business
AND communicate these results to interested users
Links decision makers with economic activities - and with the results of their decisionsb.
Managerial Accounting - used by people inside the company to make decisionsi.
Financial Accounting - used by 'outsiders' to make decisionsii.
Main Types of Accounting Infoc.
Do we have enough cash to pay our bills?1.
How much does it cost to manufacture of unit of product?2.
Can we afford to give employees pay raises?3.
Which product line is the most profitable?4.
Internal Users - managementi.
Taxing authorities, regulatory agencies, customers, competitors, analysts1.
Is the company earning satisfactory income?2.
How does the company compare in size and profitability with competitors?3.
Will the company be able to pay its debts when they are due?4.
External users - investors, creditorsi.
Financial Statements - a set of accounting reports that convey information to the outside
users such as creditors & investors
Balance Sheet (Statement of financial position)□
Income Statement (Statement of Earnings)□
Statement of Owners' Equity□
Statement of Cash Flows□
4 Major Financial statements
How do we get information to the outside users?
Compare financial statements made using the same method-
Scenario: deciding which company to invest in
FASB Does not have express authority to develop GAAP-
Financial Accounting Standards Board (FASB) - private sector org that develops most of the
Securities Exchange Commission (SEC) - public sector org that has express authority to
2 Organizations Responsible for the development of GAAP:-
Generally Accepted Accounting Principles (GAAP) - the concepts, standards, guidelines, and conventions
companies are supposed to follow when preparing financial statements
Monday, January 9, 2017 10:32 AM
Unit 1 Page 1