1. Describe the primary forms of business organization.
2. Identify the users and uses of accounting information.
3. Explain the three principal types of business activity.
4. Describe the content and purpose of each of the financial statements.
5. Explain the meaning of assets, liabilities, and stockholders’ equity, and state the basic accounting equation.
6. Describe components that supplement the financial statements in an annual report.

Forms of business organization:

Proprietorship
Partnership
Corporation

Generally owned by

_______ person

Shared

______________

Easy to transfer

______________

_____________ to

establish

Broader skills and

resources

Easier to __________

capital

_________

advantages

_________

advantages

No personal

________________

Accounting is the information system that identifies, records, and

communicates the economic _______________ of a firm to interested users.

Users of accounting information

Type
Examples
1.

Finance, Human Resources, Management and Marketing
2.

IRS, Customers, Creditors, Investors, Labor Unions, and Regulatory Agencies

Effective financial reporting depends on sound _____________ behavior.

Recent financial scandals led Congress to pass the ________________________ in 2002.

Key Provisions:
1) Managers must certify the _______________ of the financial statements.

2) Outside auditors who review financial statements must be ________________.

3) Penalties for _____________ financial information are more severe.

Steps in Solving an Ethical Dilemma

1. Recognize an __________ situation and the ethical issues involved.

2. Identify and analyze the principal _____________ in the situation.

3. Identify the alternatives, and weigh the impact of each alternative on various

_________________________.

The 3 Types of Business Activities

1. Financing Activities:

Two primary sources of outside funds are:

a. __________________________
Amounts owed are called _____________________.
Party to whom amounts are owed are creditors.
Notes payable and bonds payable are different type of liabilities.

b. ________________________________
Payments to stockholders are called __________________.

2. Investing Activities:
Purchase of resources a company needs in order to operate.
Computers, delivery trucks, furniture, buildings, etc.
Resources owned by a business are called ____________.

3. Operating Activities:
Once a business has the assets it needs, it can begin its operations.

___________________ - Amounts earned from the sale of products (sales revenue, service revenue, and interest revenue).

________________ - Goods available for sale to customers.
Operating Activities (cont.):

_____________ - Right to receive money from a customer, in the future, as the result of a sale.

_____________- cost of assets consumed or services used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense).

________________ arising from expenses include accounts payable, interest payable, wages payable, and income taxes payable.

______________– when revenues exceed expenses.

______________ – when expenses exceed revenues

Companies prepare 4 financial statements to communicate financial information:

Name
Definition
Components

Reports results of operations for a period of time.

Amounts and causes of changes in retained earnings during the period.

Reports assets and claims to assets at a specific point in time.

Provide financial information about cash receipts and cash payments of a business for a period of time.

Illustration 1-4

Illustration 1-5

Illustration 1-7

Illustration 1-8

Components of the Annual Report
Component
Definition
1.

Four