MGMT30A Ch1.docx

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Kari- Lyn Williamson

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MGMT30A Ch1 I. Forms of Business Organizations - sole proprietorship: business owned by 1 person o simple to set up o gives you control o tax advantages - partnership: business owned by 2 or more people associated as partners o individual doesn’t have enough eco. Resources o partners bring unique skills/resources o tax advantages - corporation: business organized as separate legal entity owned by stockholders o buying stock in corp more attractive than investing in partnership o easier to transfer ownership o easy to sell (raise funds) o no personal liability, pay more taxes o stockholders: investing small amounts of $ II. Users & Users of Financial Info - accounting: info system that identifies, records, communicates econ events of org to interested users o users: internal & external users o internal: managers who plan, org, run business o external  investors (owners): use accounting info to make decisions to buy, hold, sell stock  creditors: suppliers, bankers evaluate risks of selling on credit/lend $  taxing authorities: (IRS) see if comp comply to tax laws  Customers see if honor product warranties  Labor unions see if owners will have ability to increase wage/benefits  Regulatory agencies see if follow prescribed rules A. Ethics in Financial Reporting a. Hurting investors’ faith sent stock prices down b. Info not credible anymore c. Sarbanes-Oxley Act (SOX): reduce unethical corp behavior & decrease future corporate scandals i. Top mgmt. certify accuracy of financial info ii. Penalties more severe iii. Increase independence outside auditors who review accuracy of corporate fin statements iv. Increase oversight role of BOD III. Business Activities o financing: personal savings/cash from banks o investing: cash into equipment to run business o operating: making & sell o accounting information system: keeps track of results of each business activities (finance, invest, operating) A. Financing Activities - sources of outside funds  borrow $$ or sell stock - loan or borrow from investors (bonds) - liabilities: amount owned to creditors o note payable: bank for the money borrowed o bonds payable: debt sold to investors must be repaid by particular date - Common stock: total amount paid in by stockholders for shares they purchase o Creditor claims paid before stockholder claims o Dividends: regular basis of payments to stockholders B. Investing Activities - assets: resources owned by a business o property, plant, equipment o cash is one of most important assets, can invest extra in stock/bonds - investments increase activity C. Operating Activities - Revenue: increase in assets resulting from sale of a product/service in normal course of business o Sale rev., service rev, interest rev (long live) - (short live assets)  supplies - inventory: goods available for future sales - account receivable: right to receive money in future - expenses: cost of assets consumed/services used in
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