ACC 311 Lecture Notes - Lecture 1: Retained Earnings, Sole Proprietorship, Limited Liability

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viridianraven17

20 Jan 2017

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● Accounting: A system that collects and processes financial information about an

organization and reports that information to decision makers

○ Managerial (Management) Accounting: Developing accounting information for

internal decision makers

○ Financial Accounting: Accounting for external decision makers

● Internal Decision Makers

○ Managers

● External Decision Makers

○ Stockholders

○ Creditors

● Accounting Entity: The organization for which financial data are to be collected (separate

and distinct from owners)

● Creditor: A lender. Creditors make money on loans by charging interest

● Dividends: A portion of what the company earns in the form of cash payments

● Cost of goods sold vs. expenses

○ Cost of goods sold: inventory

○ Expenses: service

● Net income → increase in retained earnings

● Net loss → decrease in retained earnings

● Accrual Basis:

○ Receivables

○ Payables

● Balance sheet:

○ Look for probable future economic benefit

○ Result of past transaction or event

● Stockholders’ Equity:

○ Contributed capital

○ Retained earnings

○ Accumulated other Comprehensive Income (AOCI)

● Retained earnings is what ties the balance sheet and income sheet together

● Every transaction in business either affects:

○ Balance sheet

○ Income statement

● Three main types of business entities

○ Sole Proprietorship

■ Unincorporated business owned by one person

■ Usually small in size

■ Common in service, retailing, and farming industries

■ Often the owner is the manager

■ Legally, the business and owner are not separate entities

■ However, business must be accounted for separately from its owner

○ Partnership

■ Unincorporated business owned by two or more persons (partners)

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Document Summary

Accounting: a system that collects and processes financial information about an organization and reports that information to decision makers. Managerial (management) accounting: developing accounting information for internal decision makers. Financial accounting: accounting for external decision makers. Accounting entity: the organization for which financial data are to be collected (separate and distinct from owners) Creditors make money on loans by charging interest. Dividends: a portion of what the company earns in the form of cash payments. Net income increase in retained earnings. Net loss decrease in retained earnings. Retained earnings is what ties the balance sheet and income sheet together. Common in service, retailing, and farming industries. Legally, the business and owner are not separate entities. However, business must be accounted for separately from its owner. Unincorporated business owned by two or more persons (partners) Agreements between owners are specified in contract. Legally, each general partner has unlimited liability. However, business is accounted for separately from owners.