Accounting final: chapters 1 and 2

business owned by one person.

examples: small local businesses such as restaurants, photography studios, retail stores, etc.

business owned jointly by two or more individuals.

examples: physicians, lawyers, accountants.

business organized under the laws of a particular state.

examples: apple; owned by stockholders

reports the resources (assets) owned by a company and the claims against those resources (liabilities and stockholders' equity) at a specific point in time.

reports how well a company has performed its operations (revenues, expeses, and income) over a period of time.

reports how much of the company's income was retained in the business and how much was distributed to owners over a period of time.

considered a residual interest in the assets of a corporation that remain after deducting its liabilities.

• cash
• short-term investments or marketable securities
• accounts receivable
• inventories
• prepaid expenses (rent, insurance, supplies)

assets that are not classified as long-term or noncurrent assets.

includes: long-term investments; property, plant, and equipment; intangible assets.

company expects to hold the investment for longer than one year.

represents the tangible, long-lived, productive assets used by a company in its operations to produce revenue.

• land
• buildings
• machinery
• manufacturing equipment
• office equipment
• furniture

provide a benefit to a company over a number of years; lack physical substance

• patents
• copyrights
• trademarks
• goodwill

consist of obligations that will be satisfied within one year or the operating cycle, whichever is longer.

• accounts payable
• salaries payable
• unearned revenue
• interst payable
• income taxes payable

obligations of the company that will require payment beyone one year or the operating cycle, whichever is longer

• notes payable
• bonds payable

• contributed capital: oweners' contributions of cash and other assets to the company
• retained earnings: the accumulated net income of a company that has not been distributed to owners in the form of dividends

Assets:

• current assets
• long-term investments
• PP&E
• intangible assets

Liabilities:

• current liabilities
• long-term liabilities

Stockholders' equity

• contributed capital (common stock)
• retained earnings

measure of liquidy, computed as:

an alternative measure of liquidy that allows comparisons to be made between different companies and is computed as:

Revenues:

• net sales
• interest income

                    add revenues together

Expenses:

• cost of goods sold
• selling expneses
• research and development
• other expenses
• income taxes expense

                    add expenses together

Net income:

                    subtract: revenues - expenses = net income

retained earnings (from beginning of year)

        add: net income

        less: dividends

retained earnings = total from calculations

• relevance
• faithful representation
• comparability
• verifiability
• timliness
• understandability

simple and orderly process based on a series of steps and conventions.

steps:

1. analyze transactions
2. journalize transactions
3. post to the ledger
4. prepare a trial balance
5. adjust the accounts
6. prepare financial statements
7. close the accounts

describes the system used by companies to record the effects of transactions on the accounting equation.

• under this system, each transaction affects at least two accounts.