Beruflich Dokumente
Kultur Dokumente
easy to start
shared control broader skills and resources tax advantages
Disadvantages partner can become liable difficult transfer of ownership Corporation a separate legal entity owned by stockholders Advantages easy to transfer ownership easier to raise funds no personal liability Disadvantages unfavorable tax treatment (double taxation) Go to Do it 1-1 p. 28 Identify each of the following organizational characteristics with the organizational form or forms with which it is associated. a) Easier to transfer ownership. - corporation b) Easier to raise funds. - corporation c) More owner control.
- Sole proprietorship. d) Tax advantages. - Sole proprietorship and partnership. e) No personal legal liabilities - Corporation.
Ethics in Financial Reporting The Enron, WorldCom, HealthSouth, and AIG financial scandals in recent years led to a general mistrust of financial reporting. U.S. regulators and lawmakers grew concerned that the economy would suffer if investors lost confidence in corporate accounting due to unethical financial reporting. In response, in 2002, Congress passed the SARBANES OXLEY Act (SOX). As a result of SOX, top management must now certify the accuracy of financial information, and penalties for fraudulent financial activity by top management are now much more severe. SOX also calls for increased independence of outside auditors who review the accuracy of corporate financial statements, and increased responsibility of the board of directors in their oversight role.
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Borrowing from creditors, which creates a liability (debt financing) Examples: Selling ownership interests in the corporation to shareholders (equity financing) Investing activities - obtaining assets (resources) needed to operate the business (i.e., buildings, equipment, land, office supplies, etc.) Operating activities - comprise the primary activities for which the organization is in business Revenue - generated by selling a product or providing a service. Expenses the costs incurred (e.g., advertising, salaries, utilities) in order to earn revenue.
Study Objective 4 - Describe the Content and Purpose of Each of the Financial Statements
Accountants communicate with users through four financial statements (see p. 11-16 in text) Income Statement (IS) Reports success or failure of the companys operations during the period Summarizes all revenue and expensies for the period month, quarter, or year. If revenues exceed expenses, the result is a net income. If expenses exceed revenue, the result is a net loss Retained Earnings Statement (RE) Starts with Beginning Retained Earnings, Adds Net Income (or subtracts Net Loss) and deducts the amount of Dividends for the period. Indicates the change in Retained Earnings during the period (month, quarter, year). Balance Sheet (BS) Shows relationship between assets and equities at a point in time - on a particular date. Total Assets must = Total Equities (Liabilities + Stockholder=s Equity) Statement of Cash Flows (CF) Reports the cash effects of a companys operating, investing, and financing activities for a period of time Indicates increase or decrease in cash balance as well as ending cash balance. Interrelationship (interrelatedness) of financial statements (see Illustration 1-9, p. 17) GO TO BE 1-7, p. 31 (a) (b) (c)
(d)
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GO TO BE 1-10, p. 28 (a) (d) (b) (e) (c) (f) The BASIC ACCOUNTING EQUATION (and alternate forms): Assets = Equities Assets = Liabilities + Stockholders Equity (PRIMARY FORM USED) Assets Liabilities = Stockholders Equity Assets Stockholders Equity = Liabilites GO TO BE 1-8, p. 28
Liab.
Study Objective 6 - Describe the Components that Supplement the Financial Statements in an Annual Report
Companies traded on an organized stock exchange like the New York Stock exchange or the American Stock Exchange are required to provide shareholders with an annual report. The annual report includes: Financial Statements (four) Income Statement, Retained Earnings Statement, Balance Sheet, & Statement of Cash Flow. Management Discussion and Analysis (MD&A) Covers three major aspects of the company:
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Liquidity, Capital Resources, and Results of Operations. Notes to the Financial Statements Clarify or provide Details about information presented in the financial statements Describe accounting policies or explain uncertainties and contingencies Auditors Report An auditor is a professional accountant (CPA) who conducts an independent examination of the financial accounting data presented (prepared) by the company. If the financial statements are presented in accordance with U.S. Generally Accepted Accounting Principles (or iGAAP), the auditor will express what is referred to as an unqualified opinion. LOOK AT Specimen Financial Statements: Tootsie Roll, Inc.-Appendix A, (at back of textbook p. 746) GO TO Do it! 1-4, p.29 (1) (4) (2) (5) (3) (6) GO TO Do it! 1-3, p. 29 GO TO E 1-1, p. 29 (a) (b) (c) (d) (e) (f) (g) (h)
GOULD CORPORATION Income Statement For the Year Ended Dec 31, 2012 Revenue Service revenue ................................................... Expenses Rent expense ........................................................ Advertising expense ............................................ Supplies expense.................................................. Total expenses .......................................... Net Income .................................................................. GOULD CORPORATION Retained Earnings Statement For the year ended Dec 31, 2012 Retained earnings, January 1 ........................................... Add: Net Income ............................................................ Less: Dividends ................................................................ Retained Earnings, Dec 31 ............................................... GOULD CORPORATION Balance Sheet $ 0 9,300 9,300 2,500 $ 6,800 $25,000 $10,000 4,000 1,700 15,700 $9,300
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Dec 31, 2012 Assets Cash ................................................................................... Accounts receivable .......................................................... Supplies ............................................................................. Equipment ........................................................................ Total assets ........................................................................ Liabilities and Stockholders Equity Liabilities Notes payable ............................................................ Account payable ........................................................ Total liabilities ............................................... Stockholders equity Common stock........................................................... Retained Earnings 12/31 ........................................... Total stockholders equity............................. Total liabilities and stockholders equity ......................... $ 3,100 2,000 1,900 26,800 $33,800
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