Business Structures:

corporation: company legally separate from its owners (owned by stockholders)
sole proprietorship: a business owned by one person
partnership: a business owned by two or more people

*neither partnerships/sole proprietorship offer limited liability unless an LLC*

Business Activities:

Financing Activities: transactions the company has with investors and creditors
Investing Activities: transactions involving the purchase and sale of resources that are expected to benefit the company for several years.
Operating Activities: transactions that relate to primary operations of the company.

GAAP - Generally Accepted Accounting Principles

What is the importance of Auditors?

Auditors are trained individuals hired by a company as an independent party to express a professional opinion of the extent to which financial statements are prepared in compliance with GAAp and are free of material misstatement.

ACCOUNTING EQUATIONS:

Assets = Liabilities + Stockholder's Equity

Net Income - Dividends = Retained Earnings

Net Income = Revenue - Expenses

Terms to Know:

revenues: amounts recognized when the company sells products/provides services to customers.

expenses: costs of providing products/services and other business activities during current period.

net income: difference between revenue and expenses (aka earnings or profit).

dividends: distributions to stockholders, usually in the form of cash payments. Dividends are NOT expenses.

financial statements: periodic reports published by the company for purpose of providing information to external users.

income statements - revenues and expenses over an interval of time
stockholder's equity -
balance sheet - financial position of a company on a particular date
cash flows - measure activities involving cash receipts and cash payments over an interval of time

operating cash flow: cash transactions involving revenue and expense activities

investing cash flow: cash transactions for the purchase and sale of investments and long term assets

financing cash flow: cash transactions with lenders and stockholders

	Created by Carmen Carselle about 6 years ago

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