Land Buildings Vehicles Computers Furniture Equipment
15
Operating Activities
Primary activity of business
Selling goods Providing services Manufacturing Cost of Sales Advertising Paying employees Paying utilities
3. Explain the three principal types of business activity.
4. Describe the content and purpose of each of the financial statements.
3
Study Objectives
5. Explain the meaning of assets, liabilities, and stockholders’ equity, and state the basic accounting equation.
6. Describe the components that supplement the financial statements in an annual report.
4
111 Forms of Business Organization
Sole proprietorship Partnership Corporation
11
Users of Financial Information
External Users Ask?
12
311
Types of Business Activity
Financing
Investing
Operating
13
Financing Activities
Borrowing creates
Financial Accounting:
Tools for Business Decision Making, 4th Ed.
Kimmel, Weygandt, Kieso
CHAPTER 1
Prepared by
Ellen L. Sweatt Georgia Perimeter College
1
Chapter 1
Easy to transfer ownership
Greater capital raising potential
Lower legal liability
Unfavorable tax treatment
8
211 Users of Financial Information
Internal
16
Operating Activities
Revenues are the increases in assets
resulting from the sale of a product or service
Expenses are the cost of assets
consumed or services used in generating revenue.
If revenue > expense = Net Income If revenue < expense = Net Loss!
17
Review
Which is not one of the three forms of business organization?
a. Sole proprietorship. b. Creditorship. c. Partnership. d. Corporation.
Managers who plan, organize and run a business
Marketing managers Production
supervisors Finance directors Company officers
9
Users of Financial Information
liabilities
Bank loans Debt securities Goods on credit or
payables
Selling stock creates
stockholders’ equity
14
Investing Activities
Obtaining resources or assets to operate the business
5
Sole Proprietorship
Business owned by one person
Simple to establish Owner controlled Tax advantages Owner personally
liable Financing difficult
6
Internal Users Ask?
10
Users of Financial Information
External
Investors Creditors Others
Regulatory agencies Tax authorities Customers Labor Unions Economic planners
Partnership
Two or more owners Simple to establish Shared control Broader skills &
resources Tax advantages Personal liability
7
Corporation
Separate legal entity owned by stockholders
AN INTRODUCTION TO FINANCIAL STATMENTS
2
Study Objectives
1. Describe the primary forms of business organization.
2. Identify the users and uses of accounting information.