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30 Cards in this Set

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What are the 3 Forms of Business Organizations?
1) Sole Proprietorship - owned by one person.
2) Partnership - owned by more than one person.
3) Corporation - organized as a separate legal entity and owned by stockholders
What are the two primary types of Users of Financial Information?
Internal Users and External Users
Internal Users
They are managers who plan, organize and run a business.
External Users (7)
Investors
Creditors
Taxing authorities
Regulatory agencies
Customers
Labor unions
Economic planners
4 Questions Asked by Internal Users
1) Is cash sufficient to pay bills?
3) What is the cost of manufacturing each unit of product?
3) Can we afford to give employee pay raises this year?
4) What product line is most profitable?
3 Questions Asked by External Users
1) Is the company earning satisfactory income?
2) How does the company compare in size and profitability with competitors?
3) Will the company be able to pay its debts when they become due?
3 Types of Business Activity
1) Financing
2) Investing
3) Operating
Two Ways of Outside Financing of a Corporation
1) Borrowing money(liabilities)
2) Issuing shares of stock in exchange for cash
Assets
resources owned by a business
Liabilities
debts and obligations of the business - represents claims of creditors on the assets of the business
Common stock
stock representing the primary ownership interest in a corporation
Investing Activities
Obtaining the
Resources or Assets
needed to operate the business
4 Examples of assets
1) Cash
2) Accounts Receivable
3) Inventory
4) Buildings, Equipment, Furniture
*Most liquid is always listed at the top*
2 Investing Activities - Examples
1) Purchase or sale of computers, delivery trucks, furniture, buildings
2) Purchase or sale of investments
What Are Revenues?
The assets that result from sale of a product or service.
3 Examples of Revenues
1) Taxi Company - sells services

2) Theatre - sells services & products

3) Retail Store - sells products
What Are Expenses?
the costs of assets consumed or services used to generate revenues.
4 Types of Expenses
1) Cost of sales
2) Store operating expenses
3) General and administrative expenses
4) Interest expense
3 Examples of Expenses
1 ) Taxi Company - gasoline, maintenance, insurance
2) Theatre - salaries, supplies, film rental, concessions to resale
3) Retail Store - utilities, taxes, rent, supplies, salaries
Net Income
Net Income is the excess of revenues over expenses.
The 4 Financial Accounting Statements
1) Income Statement
2) Retained Earnings Statement
3) Balance Sheet
4) Statement of Cash Flows
Income Statement
reports the results of operations for a specific period of time
Retained Earnings Statement
reports the changes in retained earnings for a specific period of time
Balance Sheet
reports the assets, liabilities, and stockholders’ equity at a specific date
Statement of Cash Flows
reports the cash receipts and payments for a specific period of time.
4 Elements of an Annual Report
1) Financial Statements
2) Management Discussion and Analysis
3) Notes to Financial Statements
4) Auditor's Report
3 parts of Management Discussion and Analysis
1) Liquidity
2) Capital Resources
3) Results of Operations
liquidity
ability to pay near-term obligations
capital resources
ability to fund operations and expansions
Notes to Financial Statements
1) Provide additional information not included in body of statements *
Does not have to be numeric*