Chapter 1 Accounting and The Business Environment. Decision Makers. Two Fields of Accounting. Financial Accounting. Managerial Accounting. Focuses on information for internal decision makers Managers Business Owners Employees. Provides information for external decision makers Investors
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Accounting and The Business Environment
Focuses on information for internal decision makers
Provides information for external decision makers
Suppose you are the manager of Greg’s Tunes, Inc. The company needs a bank loan in order to purchase music equipment. In evaluating the loan request, the banker asks about the assets and liabilities of the business. In particular, the banker wants to know the amount of the business’s stockholders’ equity.
Conflict of Interest
Chloe Michaels plans on opening Chloe Michaels’ Floral Designs. She is considering the various types of business organizations and wishes to organize her business with unlimited life and limited liability features. Additionally, Chloe wants the option to raise additional equity easily in the future. Which type of business organization will meet Chloe’s needs best?
Claims to Economic
Owners’ claims to the assets of the business
+ Net income(loss)
Select financial information for three corporations follows:
1. Compute the missing amount in the accounting equation for each entity.
2. List the seven main characteristics of a corporation.
3. Which accounting concept tells us that the previous three corporations will continue to exist in the future?
Continuous Life and transferability
Limited Liability of Stockholders
No Mutual Agency
Separate Legal Entity
Separation of ownership and managers
Going Concern Concept
Caren Smith opened a medical practice. During July, the first month of operation, the business, titled Caren Smith, M.D., P.C. (Professional Corporation), experienced the following events:
Studio Photography, Inc., works weddings and prom-type parties. The balance of retained earnings was $16,000 at December 31, 2011. At December 31, 2012, the business’s accounting records show these balances:
Prepare the following financial statements for Studio Photography, Inc. for the year ended December 31, 2012:
a. Income statement
b. Statement of retained earnings
c. Balance sheet