Financial Accounting

Business Structures: corporation: company legally separate from its owners (owned by stockholders) sole proprietorship: a business owned by one person partnership: a business owned by two or more people                   *neither partnerships/sole proprietorship offer limited liability unless an LLC*   Business Activities:  Financing Activities: transactions the company has with investors and creditors Investing Activities: transactions involving the purchase and sale of resources that are expected to benefit the company for several years. Operating Activities: transactions that relate to primary operations of the company.   GAAP - Generally Accepted Accounting Principles   What is the importance of Auditors?                      Auditors are trained individuals hired by a company as an independent party to express a professional opinion of the extent to which financial statements are prepared in compliance with GAAp and are free of material misstatement.    ACCOUNTING EQUATIONS: Assets = Liabilities + Stockholder's Equity Net Income  - Dividends = Retained Earnings Net Income = Revenue - Expenses Terms to Know: revenues: amounts recognized when the company sells products/provides services to customers. expenses: costs of providing products/services and other business activities during current period. net income: difference between revenue and expenses (aka earnings or profit). dividends: distributions to stockholders, usually in the form of cash payments. Dividends are NOT expenses.  financial statements: periodic reports published by the company for purpose of providing information to external users.  income statements - revenues and expenses over an interval of time stockholder's equity -  balance sheet - financial position of a company on a particular date  cash flows - measure activities involving cash receipts and cash payments over an interval of time operating cash flow: cash transactions involving revenue and expense activities investing cash flow: cash transactions for the purchase and sale of investments and long term assets financing cash flow: cash transactions with lenders and stockholders