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30 Cards in this Set
- Front
- Back
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What are the 3 Forms of Business Organizations?
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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 |
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What are the two primary types of Users of Financial Information?
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Internal Users and External Users
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Internal Users
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They are managers who plan, organize and run a business.
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External Users (7)
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Investors
Creditors Taxing authorities Regulatory agencies Customers Labor unions Economic planners |
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4 Questions Asked by Internal Users
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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? |
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3 Questions Asked by External Users
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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? |
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3 Types of Business Activity
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1) Financing
2) Investing 3) Operating |
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Two Ways of Outside Financing of a Corporation
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1) Borrowing money(liabilities)
2) Issuing shares of stock in exchange for cash |
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Assets
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resources owned by a business
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Liabilities
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debts and obligations of the business - represents claims of creditors on the assets of the business
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Common stock
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stock representing the primary ownership interest in a corporation
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Investing Activities
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Obtaining the
Resources or Assets needed to operate the business |
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4 Examples of assets
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1) Cash
2) Accounts Receivable 3) Inventory 4) Buildings, Equipment, Furniture *Most liquid is always listed at the top* |
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2 Investing Activities - Examples
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1) Purchase or sale of computers, delivery trucks, furniture, buildings
2) Purchase or sale of investments |
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What Are Revenues?
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The assets that result from sale of a product or service.
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3 Examples of Revenues
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1) Taxi Company - sells services
2) Theatre - sells services & products 3) Retail Store - sells products |
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What Are Expenses?
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the costs of assets consumed or services used to generate revenues.
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4 Types of Expenses
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1) Cost of sales
2) Store operating expenses 3) General and administrative expenses 4) Interest expense |
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3 Examples of Expenses
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1 ) Taxi Company - gasoline, maintenance, insurance
2) Theatre - salaries, supplies, film rental, concessions to resale 3) Retail Store - utilities, taxes, rent, supplies, salaries |
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Net Income
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Net Income is the excess of revenues over expenses.
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The 4 Financial Accounting Statements
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1) Income Statement
2) Retained Earnings Statement 3) Balance Sheet 4) Statement of Cash Flows |
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Income Statement
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reports the results of operations for a specific period of time
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Retained Earnings Statement
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reports the changes in retained earnings for a specific period of time
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Balance Sheet
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reports the assets, liabilities, and stockholders’ equity at a specific date
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Statement of Cash Flows
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reports the cash receipts and payments for a specific period of time.
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4 Elements of an Annual Report
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1) Financial Statements
2) Management Discussion and Analysis 3) Notes to Financial Statements 4) Auditor's Report |
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3 parts of Management Discussion and Analysis
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1) Liquidity
2) Capital Resources 3) Results of Operations |
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liquidity
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ability to pay near-term obligations
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capital resources
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ability to fund operations and expansions
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Notes to Financial Statements
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1) Provide additional information not included in body of statements *
Does not have to be numeric* |
