Types of Business Organizations

Service companies - provide services to customers Merchandise or retail companies sell products Manufacturing companies - make their own products

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forms of Business Organizations

Proprietorships Partnerships Corporations

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Accounting
Measures Processes Communicates Financial information to decision makers

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Financial vs. Managerial Accounting

Financial Accounting - for those outside of the company
Reports are called Financial Statements Prepared according to GAAP

Managerial Accounting
Helps managers plan, control, and make decisions

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GAAP
Generally Accepted Accounting Principles - established rules, principles, and concepts Formulated by Financial Accounting Standards Board (FASB)

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GAAP
Primary objective of financial accounting provide information that is useful for making investment and lending decisions

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Entity Concept
Accounting Entity organization that stands apart as a separate economic unit

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Reliability (Objectivity) Principle

Accounting information is based on the most reliable data available
Verifiable Free from bias Individuals would arrive at similar conclusions using same data

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Cost Principle
Acquired assets and services should be recorded at their actual cost (historical cost)

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Going Concern Concept

Assumes that the entity will remain in operation for the foreseeable future

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Assets
Economic resources, expected to benefit the business in the future
Cash Accounts receivable Merchandise inventory Furniture Land

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Claims to the Assets

Liabilities economic obligations payable to an individual or organization outside the business
Accounts payable Notes payable Salary payable

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Claims to the Assets

Owners Equity (capital) claim of business owner to the assets of the business

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The Accounting Equation

= Liabilities + Owners Equity

Assets

Economic Resources

Claims to Economic Resources

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Revenues
Amounts earned by delivering goods or services to customers
Sales revenue Service revenue Interest revenue Dividend revenue

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Expenses
Decrease in owners equity - occurs from using resources in the course of delivering goods or services to customers
Salary expense Rent expense Utilities expense Interest expense

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Net Income (Loss)

Revenues Expenses

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Components of Owners Equity

Revenues
Beginning Balance of Owners Equity Expenses

Ending Owner Owner + Net Income = Balance of Investments Withdrawals (Net Loss) Owners Equity

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Transaction
An event that affects the financial position of a particular entity and can be recorded reliably

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S1-9
a. Assets b. Liabilities c. Owners Equity d. Revenues e. Expenses

e ____ a ____ c ____ a ____ e ____

1. 2. 3. 4. 5. e ____ 6.

Utilities Expense Accounts Receivable Gay Gillen, Capital Office Supplies Lease Expense, Computer Salary Expense
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S1-9
a. Assets b. Liabilities c. Owners Equity d. Revenues e. Expenses

a ____ e ____ d ____ b ____ a ____

7. Cash 8. Rent Expense, Office 9. Service Revenue 10. Accounts Payable 11. Land

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Financial Statements
Income statement Statement of owners equity Balance sheet Statement of cash flows

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Income Statement
Summary of an entitys revenues, expenses, and net income or net loss for a specific period Revenues - Expenses
Net Income: Revenues > Expenses Net Loss: Expenses > Revenues

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Statement of Owners Equity

Summary of changes in an entitys owners equity during a specific period Beginning owners equity + Owners investments + Net income - Net loss - Owners withdrawals Ending owners equity
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Balance Sheet
Reports the entitys assets, liabilities, and owners equity as of a specific date Assets = Liabilities + Owners Equity

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S1-10
Income Statement (IS) Balance Sheet (BS) Statement of Owners Equity (OE)

_____1. BS _____2. BS _____3. IS IS _____4. OE _____5. _____6. BS

Accounts Receivable Notes Payable Advertising Expense Service Revenue J. P., Capital, June 1 Office Supplies
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K. Hobt, D.D.S. Income Statement For the Month Ended July 31, 2007

Revenue:
Fees earned Expenses: Rent expense Net income $7,000 1,000 $6,000

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K. Hobt, D.D.S. Statement of Owners Equity For the Month Ended July 31, 2007
K. Hobt, capital, July 1, 2007 Add: Investment by owner Net income for the month Subtotal Less: Withdrawals by owner K. Hobt, capital, July 31, 2007 $ 0 60,000 6,000 $66,000 0 $66,000

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K. Hobt, D.D.S Balance Sheet July 31, 2007

Assets

Cash $10,000 Medical supplies 1,500 Land 55,000 Total assets $ 66,500

Liabilities Accounts payable $500 Owners equity, M. Lange, capital 66,000 Total liabilities and owners equity $ 66,500

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