Chapter 1 Introduction to financial statements
Sole Proprietorship- simple to establish, owner controlled, tax advantage.
Partnership- simple to establish, shared control, broader skills and resources, tax advantages.
Corporation- Easier to transfer ownership, easier to raise funds, no personal liability.
Internal Users- are managers who plan, organize, and run a business. (EX. Marketing
Managers, production supervisors, finance directors, and company officers.
Potential Users- Investors
Government Users-
External Users- are investors and creditors.
Investors- use accounting information to make decisions to buy, hold, or sell stock.
Creditors- are suppliers and bankers who use accounting info to evaluate risks of selling on credit or lending money.
Taxing Authorities- such as the Internal Revenue Service, want to know if companies comply with the law.
Customers-
Labor Unions- such as the MLB Association.
Regulatory Agencies- Such as SEC (Securities and Exchange Commission) want to know if companies are following the rules.
Sarbanes-Oxley Act (SOX)- passed by congress to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals. Top management must certify accuracy of financial information. Was created because of the Enron Scandal.
3 Types of Business Activities (Financing, Investing, and Operating)
Financing Activities- Buying land, property plans, and equipment.
Asset- a probable future benefit. (No guarantee) –Long term contracts on assets – Short Term contracts are current assets.
Liabilities- probable future sacrifice (Owe cash resource)- short term liabilities, long term liabilities, and mortgage.
Common Stock- the total amount paid in by stock to investors.
Dividends- cash payment to stockholders.
Expense- is a current benefit (Inventory-Current Asset) – Current of resources arising from business