BUS 214 Chapter 1: BUS 214 Ch. 1

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7 Feb 2017
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Chapter 1: The Financial Statements
Financial Statements: Business documents that companies use to report the results of
their activities to various use groups (managers, investors, creditors, and regulatory
agencies)
Accounting: An information system that measures human activities, processes data
into reports and communicates results to decision makers.
Financial Accounting: Provides relevant information for decision makers that
faithfully represents on the entity’s economic activities
Management Accounting: Provides information for the managers such as
budgets, forecasts, and projection to help with decision making.
Proprietorship
Partnership
LLC
Corporation
Owner
Proprietor - one
owner (small
retail stores or
solo providers of
professional
services)
Partners - two or
more owners
(retail
establishments,
professional
service firms,
real estate)
Members
Stockholders -
generally many
owners
Personal
liability of
owner(s) for
business’s
debts
Proprietor is
personally liable
General partners
are personally
liable; a limited
liability
partnership
cannot create a
large liability for
the other
partners
Members are not
personally liable
- income flows
through to
members
Stockholders are
not personally
liable; legally
distinct from its
owners
Double taxation
of distributed
profits
Generally Accepted Accounting Principles (GAAP)
Financial Accounting Standards Board (FASB)
International Accounting Standards Board (IASB): sets global financial reporting
standards
Accounting’s
Objective
To provide financial information about the reporting entity that is useful to existing
and potential investors, lenders, and other creditors in making decisions about
providing resources to the entity.
Fundamental
Qualitative
Characteristics
Relevance
Able to make a difference to
decision maker
Help predict or confirm value
Faithful representation
Complete, neutral, and free from
error
Makes information reliable for users
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