Financial Accounting
Who does financial accounting provide information for?
external users
What are the three company structures?
Corporation
Sole proprietorship
Partnership
What are the four financial statements?
Income statement
Statement of Retained Earnings (or Stockholder's Equity)
Balance Sheet
Statement of Cash Flows
What are assets?
Resources
Give an example of an asset.
cash, accounts receivable, land, supplies, equipment, truck, building
Give one example of an external user
Investors, creditors, suppliers, customers, competitors, government
What is a sole proprietorship?
company owned by 1 person, owner has liability
Who uses financial statements?
external users
What are liabilities?
creditors claim to resources (what you OWE)
Give an example of a corporation.
Amazon, google, Apple, Walmart, Domino's, etc.
Why do suppliers care about the information on a company's financial statements (what must they decide)?
they must decide the company's ability to pay for the supplies
What is a partnership?
Company owned by 1 or more partners, have liability
What are the two components of the income statement?
Expenses
What is stockholders' equity?
owners claim to resources (what you OWN)
Give an example of a liability.
Accounts payable, salaries and wages payable, notes payable, interest payable, mortgage payable, income taxes payable
Why do investors care about a company's financial statements (what must they decide)?
They must decide whether or not to invest in the stock of the company
What is a corporation?
an organization, a separate legal entity
What are the three components of the balance sheet?
Assets, Liabilities, Stockholders' Equity
What is net income?
When revenue exceeds expenses
AKA earnings or profit
Give an example of stockholders' equity.
Common stock
Retained earnings
What are the two functions of financial accounting?
1) To measure business activities of a company
2) To communicate those measurements to external parties for decision-making purposes
What is one advantage of a corporation?
limited liability
(the corporation is its own legal entity so if anything happens (ex: someone falls in your store), only the corporation can be sued, a person can't be personally sued)
What is the accounting equation which appears on the balance sheet?
Assets = Liabilities + Stockholders' Equity
What are dividends?
distributions to stockholders
Give an example of an investing activity.
Purchasing land, building, equipment, vehicle, or securities