Fundamental Accounting Principals Account Types

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A Partnership is

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an unincorporated association of two or more people to pursue a business for profit as co-owners

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Admission of a partner

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2 methods - purchasing an interest from one or more of the current partners or by investing cash or other assets in the partnership.

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Allocation on capital balances

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Based on each partners relative capital balance

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Allocation on services

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The services, capital, and stated reaio method of allocting parnership income or loss recognizes that service and capital contributions of partners are not awlays equal.

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Allocation on stated ratios

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Each partner must agree to the fractional share they will receive.

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Basic Partnership Accounting

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Uses a Capital, withdrawl and net income loss to partners.

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bonus to remaing partners

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Choosing a business form

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proprietorships, partnerships, LLP, LLC, S corop and corporations

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Co-Owner of property

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partners have a claim on partnership assets based on their capital accounts and the partnership contract.

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Dividing Income and loss

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no salaries for partners that are reported as income. Partners can agree to allocate "salary Allowances" reflecting the value of services provided and these allowances are not expenses on the income statement.

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limited Life

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The life of a parnership os limited - death, bankruptcy, ability to fulfill a contract and termination at will.

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limited partnerships

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LP needs at least one General partner. Limirted partners have no active role except as specified in the partnership agreement. Limited partners have no personal liability past their investment.

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liquidation of a partnership.

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LLC

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Have certain charictoristics of a corporation and some charictoristics of a partnership. Limited partners can have an active role

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LLP

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Designed to protect innocent partners from malpractice or neglegence claims resulting in a malpractice claim.

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Mutual Agency

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Each parner is a fully authorized agent of the parnership

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No bonus

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no capital deficiency

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Organizing a partnership

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Credit capital accounts, partners can invest assets and liabilities, each partner invests at an agreed-on value.

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Organizing with partnership charicteristics

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Organizaitons exist that combine certain characteristics of partnerships with other forms of organizations

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partner cannot pay deficiency

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partner pays deficiency

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Partnership Agreement

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Forming a partnership requires that two or more legally compenant people agree to be partners. Partnership agreements normally include: names and contributions, rights and duties, sharing of income and losses, withdrawel arrangement, dispute procedures, admission and withdrawal of partners, and rights and duties when a death occurs.

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Partnership Financial Statements

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Are similar to other organizaitons except the statement of partners equity - it shows each partners beginning capital balance, additional invesments, allocated income or loss, withdrawls, and ending capital.

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S Corp

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Certain corporations with 75 or fewer stockholders can elect to be treated as a partnership for income tax purposes.

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Taxation

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A partnership is not subject to taxes on its income. Income is allocated each year wheather or not cash is distributed to partners.

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Three basic types of business organizations

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proprietorships, partnerships and corporations

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Unlimited liability

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Implies each parnere can be called on to pay a partnerships debts.

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Voluntary Association

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a voluntary association between partners

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Withdrawal of a partner

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generally 2 methods - partner sells his interest to another person or cash or other assets are distributed to the withdrawing partner for his interest

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Accounting for cash dividends - Date of declaration

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the date directors vote to declare and pay a dividend

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Accounting for cash dividends - Date of Payment

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Is the date the corporation makes the date

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Accounting for cash dividends - Date of record

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is the date in the future specified to identify those stockholders who will receive dividens.

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Accounting for Corporations

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Accounting for stock dividends

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transferes part of retained earnings to contributed capital accounts

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Advantages of corporate characteristics

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Separate legal entity, limited liability of its stockholders, transferable ownership rights, lack of mutual agency for stockholders (use of agents), ease of capital accumulation.

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Authorized Stock

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is a number of shares that a corporation's charter allows it to sell. (a corporation discloses the the number of shares authorized in the equity section of its balance sheet or notes.

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Basics of Capital stock

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a term used to refer to any shares issued ot obtain capital (owner financing)

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Callable prefered stock

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gives the issuing corporation the right to purchas or retire this stock

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Cash dividends

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The decision to pay cash dividends rests with the board of directors. Factors such as growth, opportunities, debt service, and the payment of reguar dividends effect the issuance of cash dividends

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Charictoristics of a corporation

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An entity created by law that is separate from its owners

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Classes of stock

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common and preffered

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common stock

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When a company has only one class of stock

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Convertible prefered stock

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gives holders the option to exchange their prefered shares for common shares

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Corporate organization and Management fees

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Incorporation costs and management of corporate organizations

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Cumulative

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Cumulative stock carries the right to be paid both the current and all prior periods' unpaid dividends before any dividends are paid to common stock holders

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Cumulative or noncumluative dividend

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Most stock carry a cumulative dividend right.

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Disadvantages of corporate charistics.

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Government regulation (laws), Corporate taxation (additional federal and state income taxes) Double taxation when stockholders receive cash distributed as dividens

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dividend in arrears

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When preferred stock is cumulative and the directors either do not declare or declare one that is not the total.

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Dividend Preference of Prefered Stock

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Prefered stock usually carries a preference for dividends, meaning that prefered stockholders are allocated their dividends before any dividends are allocated to common stockholders.

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Incorporation

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Creation through a charter from state government. A fee is paid by incorporators or promoters and the state issues a charter. Investors purchase stock and a board of directors and stockholders are formed.

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Issuance of Preferred Stock

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Prefered stock usually has a par value. Like common stock it can be sold at a price different from par.

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Issuing Par value stock

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can be exchanged for either cash or noncash assets

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Issuing Par Value stock at a discount

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when it is issued at below par value is reported as part of Equity and added to the par value of the stock in the equity seciton of the balance sheet. Stockholders may become liable when stock is issued at a discount.

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Issuing Par Value stock at a Premium

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when it is issued at above par value is reported as part of Equity and added to the par value of the stock in the equity seciton of the balance sheet.

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Issuing Par Value Stock at Par

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When common stock is issued at par value we record amount for both assets received and the par value stock issued

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Issuing Stock for Noncash Assets

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Stock is issued at market value ie.. Property value.

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Large stock dividend

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25% or more of prevoiusly outstanding shares.

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Management of a corporation

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Stockholders control a corporation by electing a board of directors, each stock holder usually has one vote and usually act collectively for setting general policy

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Market value of stock

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the price at which stock if bought and sold (expected future earnings, dividends, growth and economic factors influence value

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No Par Value Stock

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not assighned a value - issued at any price with out the possibility of a minimum legal capital deficiancy

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Non Cumulative Prefered stock

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confers no right to prior periods' unpaid dividends if they were not declared in those prior periods.

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Non Participating dividend

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Stock has a feature that limits dividends to a maximum amount each year. Once prefered stock holders the common stock holders receive the rest.

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Organizaiton Expenses (organization costs)

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legal fees, promoter fees, charter aqcuzition fees, (debit Organization Expenses)

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Par Value Stock

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a value set in the charter by stockholders

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Participating prefered stock

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stock has a feature that prrefered stock holder sto share with the common stockholders. In any dividends paid in excess of the percent or dollar amount;

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Preamptive Right

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Allows a stockholder who owns 25% of a corporations common stock to purchas 25% on any new issues of common stock.

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Proxy

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a ducument that gives a designated agent the right to vote

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Purchasing Treasuray stock

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a corporations reacquired shares

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Reason for stock dividends

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Keep the price of stock affordable and to provide evidence of managements confidence that the company is doing well and will continue to do well

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Reasons for issuing common stock

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financial lerverage

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Recording a Large stock dividend

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this transaction decreases retained earnings increases contributed capital

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Recording a small stock dividend

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isCommon stock dividend distributable.

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Registrar

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Keeps stockholder records

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Registrar and Transfer Agents

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Used if stock is traded on a major stock exchange

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Reissuing Treasury Stock

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can be reissued by selling at, above or below cost

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Reporting Stok Options

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The majority of corporations whose shares are publily traded use stock options, which are rights to purchase common stock at a fixed price over a specific period

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Retained earnings Deficit

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occurs when a company incures cumulative losses and or pays more dividends thatn total earnings from current and prior years

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Retiring Stock

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a corporation can purchase its own stock and retire it

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Rights of Stockholders (specific and general)

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Vote at stockholder meetings, sell or dispose of stock, receive equal dividends, share any assets after all creditors are paid or corporation is liquidated.

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Selling (issuing stock)

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directly through advertising to potential buyers or indirectly through brokers

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small stock dividend

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25% or less of previously outstanding shares

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Stated Value Stock

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is no-par stock to chich the directors assign a "stated" value per share. Stated

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Statement of Retained earnings

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cumulative net income

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Statement of Stockholders equity

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lists the beginning and ending balances of each equity accound and describes the changes that occur durring the period

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Stock Certificates and Transfere

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a ducument that proves ownership

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Stock dividend

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a distribution of additional shares

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Stock Splits

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The distribution of additional shares to stockholders according to their percent ownership.

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stockholders Equity

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A corporations Equity - Paid in (cash for stock) or contributed capital, retained earnings (accumlated net income or loss by a corporation)

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Stockholders of corporations

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have rights to purchase and sell stock, register and transfere agents

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Transfere Agents

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assists in the purchases and sales of shares be receiving and issuing certificates as necessary.