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ACCT 2000 Exam 1 (got 93% on the test)

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Department
Accounting
Course
ACCT 2000
Professor
All Professors
Semester
Fall

Description
ACCT 2000EXAM 1Chapter 1 Intro to Financial Statementspg 123 Channel 41 Objectives Describe the primary forms of business organization Identify users and uses of accounting infoExplain three principle types of business activity Describe the content and purpose of each of financial statements Explain meaning of assets liabilities and stockholders equity and state the basic accounting equation Describe components that supplement the financial statements in annual report I Users and Uses of Financial Information Forms of Business Organization ProprietorshipPartnershipCorporationGenerally owned by one person Simple to establish two or more Easier to transfer ownership owned small business persons by stock holders Simple to establishShared controlEasier to raise funds Owner controlled Broader skills and resources Tax advantages personally liable for Tax advantages No personal liability pay higher debts taxes but no personal liability EX auto repair shop barber shop EX doctors architects CPA EX Coca Cola Exxon Microsoft small retail stores etc lawyers etcetc Note Usually formed because one Note Buying stock better than does not have enough resources to investing in partnership because initiate or expand partners bring shares of stock are easy to sell unique skills or resourcestransfer ownershipLimited Liability Corporation LLCmakes it easier to get tax advantages and protection from being sued When it comes to taxes corporations get taxed more than oncethe business is taxed if they pay out dividends etc Other factors to consider in deciding which to form are taxes and legal liability What is accountingAccounting info system that identifies records and communicates the economic events of an organization to interested users Users are internal and external users Who uses accounting dataA Internalmanagers who plan organize and run a business Human ResourcesMarketing Managers Management Production supervisors Finance Directors Company Officers Questions asked by internal usersCan we afford to give our employees a pay raiseHuman ResourcesWhat price for our product will maximize net incomeMarketing Which product is most profitableManagement Is cash sufficient to pay dividends to stockholdersFinance B Externalseveral types outside of company do business with us but outside Taxing Authorities want to know whether the company complies with tax laws Customers interested in company will continue to honor product warranties and product linesRegulatory Agencies is company operating within prescribed rules Labor Unions want to know whether owners have ability to pay increased wages and benefitsCreditors such as suppliers and bankers use accounting info to evaluate risks of selling on credit or lending money Investors use accounting info to make decisions to buy hold or sell stock Questions asked by external usersIs company earning satisfactory incomeInvestors How does Disney compare in size and profits to Time WarnerInvestors Will United Airlines be able to pay its debts as they come dueCreditors Ethics in Financial Reporting 1ACCT 2000EXAM 1United States regulators and lawmakers were very concerned that the economy would suffer if investors lost confidence in corporate accounting because of unethical financial reporting Recent financial scandals include Enron WorldCom Health South AIG and others Congress passed SarbanesOxley Act of 2002 to reduce unethical corporate behavior and decrease likelihood of future scandals Effective financial reporting depends on sound ethical behavior Solving an Ethical Dilemma 1 Recognize an ethical situation and the ethical issues involvedUse your personal ethics to identify ethical situations and issues Some businesses and professional organizations provide written codes of ethics for guidance in some business situations 2 Identify and analyze principal elements in the situation Identify the stakeholders persons or groups who may be harmed or benefited Ask What are responsibilities and obligations of parties involved3 Identify alternatives and weigh the impact of each alternative on various stakeholders Select most ethical alternative considering all consequences Sometimes there will be one right answer others involve more than one solution These situations require you to evaluate each alternative and select best oneII Business Activities All businesses are involved in three types of activity1 Financing 2 Investing 3 Operating Accounting Info System keeps track of results of each of these business activities A Financing Activities Two primary sources of outside funds are1 Borrowing MoneyAmounts owed are liabilities Party to whom amounts are owed are creditors Notes payable and bonds payablea loan are different types of liabilities 2 Issuing Share of Stock for CashPayments to stockholders are called dividends Dividends company shares profits to owners not required for basic common stock however who wants to invest if they wont receive dividends B Investing Activities Purchase of resources a company needs in order to operate Computers equipment delivery trucks furniture buildings etcMaterials of value that help run your business and has future value Resources owned by a business and help run a business are called assets EX If a company rents a building it is NOT an assetInsurance IS an asset C Operating Activities Once a business has the assets it needs it can begin its operations Normal day to day business operationswhat we buy and sell to run business Can generate liabilities Revenues amounts earned from sale of products sales revenue service revenue and interest revenue money we makeInventory goods available for sale to customers Accounts receivable right to receive money from a customer in the future as a result of a sale Expenses costs of assets consumed or services used cost of goods sold selling marketing administrative interest and income taxes expenseEX rent a building cost to make product etc Liabilities arising from expenses include accounts payable interest payable wages payable sales taxes payable and income taxes payable Net income when revenues exceed expensesNet loss expenses exceed revenues III Communicating with Users Companies prepare four financial statements from the summarized accounting data Balance Sheets presents what your business owns and owesIncome Statement to present how successful your business performed during a period of time revenues and expensesRetained Earnings Statement indicates how much previous income was distributed to you and the other owners of the business in forms of dividends and how much was retained in business to allow for future growth Statement of Cash Flows shows where business obtained cash during period of time and how cash was used 2
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