Chapter 1 - The Purpose and Use of Financial Statements.docx

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Department
Business Administration
Course
Business Administration 2257
Professor
Amy Shuh
Semester
Fall

Description
Chapter 1: The Purpose and Use of Financial Statements September 11, 2013 Michael Hua  Internal users of accounting information plan, organize, and run companies  Investors, lenders, and other creditors are considered to be the primary or key external users of accounting information  Proprietorship is a business owned by one person  Unlimited Liability – the owner receives any profits, suffers any losses, and is personally liable for all debts of the business  Partnership is a business owned by more than one person  They are formed because one person doesn’t have enough economic resources to initiate or expand the business  Corporation is a business organized as a separate legal entity owned by shareholders  Shareholders enjoy limited liability since they only risk losing the amount they have invested in the company’s shares  Public Corporations distribute their financial statements to investors, lenders, other creditors, other interested parties and the general public  Private Corporations issue shares, but they don’t make them available to the general public nor are they traded on public stock exchanges  Generally Accepted Accounting Principles – includes broad policies and practices as well as rules and procedures that have substantive authoritative support and agreement about how to report economic events (GAAP)  The GAAP are different for publicly traded and private corporations  Public corporations must use International Financial Reporting Standards (IFRS)  Private corporations can choose between IFRS or Accounting Standards for Private Enterprises  Liabilities – money owed to lenders and creditors in the form of debt  Bank Indebtedness – “paying debt with debt”  Common Shares – the amount
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