Financial Accounting

FINANCIAL ACCOUNTING

CHAPTER 1: FINANCIAL STATEMENTS AND BUSINESS DECISIONS

• sole proprietorship: single owner, unlimited liability, managers and owners are not separated
• Partnership: partners, unlimited liability, managers and owners are not separated
• LLC( Limited Liability company): members, limited liability, managers and owners might be separated
• Corporation: shareholders, limited liability, managers and owners are separated

Corporations can have many structures but the most typical one consist of:

• Board of directors
• Managers
• Employees
• Shareholders or owners/investors

A corporation can be financed:

1. EQUITY: given by the shareholders using the shares or stocks, and can give back the dividend
2. DEBT: is given by the creditors, like banks, bonds or notes, and can give back an interest.

BUSINESS OPERATIONS

1. purchase parts and labor
2. manufacture product
3. sell products to customers
4. collect cash from customers and pay creditors

The accounting system is the process that identify, record and summarized the economic informations; an information system that measures transactions and transforms information to output called FINANCIAL STATEMENTS.

It can be summarized as:

ACCOUNTING SYSTEM

FINANCIAL REPORTS

• periodic financial statements and related disclosures

EXTERNAL DECISION MAKERS

• evaluate the company

MANAGERIAL REPORTS

• detailed plans and continuous performance reports

INTERNAL DECISION MAKERS

• run the company

To aid a decision making there are a few step to follow:

1. Event: that is recorded and analyzed
2. Accountant's analysis and recording: that need to be summarized
3. Financial statements: that need to be communicated to the users

FINANCIAL ACCOUNTING

CHAPTER 1: FINANCIAL STATEMENTS AND BUSINESS DECISIONS

• sole proprietorship: single owner, unlimited liability, managers and owners are not separated
• Partnership: partners, unlimited liability, managers and owners are not separated
• LLC( Limited Liability company): members, limited liability, managers and owners might be separated
• Corporation: shareholders, limited liability, managers and owners are separated

Corporations can have many structures but the most typical one consist of:

• Board of directors
• Managers
• Employees
• Shareholders or owners/investors

A corporation can be financed:

1. EQUITY: given by the shareholders using the shares or stocks, and can give back the dividend
2. DEBT: is given by the creditors, like banks, bonds or notes, and can give back an interest.

The accounting system is the process that identify, record and summarized the economic informations; an information system that measures transactions and transforms information to output called FINANCIAL STATEMENTS.

It can be summarized as:

• FINANCIAL REPORTS - periodic financial statements and related disclosures
• EXTERNAL DECISION MAKERS - evaluate the company
• MANAGERIAL REPORTS - detailed plans and continuous performance reports
• INTERNAL DECISION MAKERS - run the company

To aid a decision making there are a few step to follow:

1. Event: that is recorded and analyzed
2. Accountant’s analysis and recording: that need to be summarized
3. Financial statements: that need to be communicated to the users

FINANCIAL STATEMENTS

• BALANCE SHEET: reports the amount of assets, liabilities, stockholders equity of an accounting entity at a point in time.
• INCOME STATEMENT: reports the revenues less the expenses of the accounting period.
• STATEMENT OF SHAREHOLDERS EQUITY: reports the way that net income and distribution of dividends affected the financial position of the company during the accounting period.
• STATEMENT OF CASH FLOWS: reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing.

To calculate the economic resources, the assets, we need to sum the liabilities and the stockholders equity, that are the sources of financing the economic resources; the liabilities are from the creditors and the stockholders equity is from the stockholders.

A = L + SE

BALANCE SHEET