Contabilidad

CHAPTER 1


Introduction to
Financial Statements


Study Objectives

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 the components that supplement the financial statements in an annual report.







Chapter Outline


Study Objective 1 - Describe the Primary Forms of Business Organization.

A business may be organized as a sole proprietorship, partnership, or corporation.

□ Sole proprietorship - a businessowned by one person
▪ Advantages
• simple to establish
• owner controlled
• tax advantages that are more favorable than a corporation

▪ Disadvantages
• proprietor personally liable for all business debts
• financing may be difficult
• transfer of ownership may be difficult

□ Partnership - a businessowned by two or more people
▪ Advantages
• simple to establish
• shared control
• broader skills and resources
• tax advantages that are more favorable than a corporation

▪ Disadvantages
• partners personally liable for all business debts
• transfer of ownership may be difficult

□ Corporation - aseparate legal entity owned by stockholders
▪ Advantages
• easier to transfer ownership
• easier to raise funds
• lower legal liability – no personal liability for stockholders

▪ Disadvantages
• unfavorable tax treatment resulting in higher taxes paid by stockholders


Study Objective 2 - Identify the Users and Uses of AccountingInformation.

The purpose of financial information is to provide inputs for decision making.

Accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users.

The users of financial information fall into two groups--internal users and external users.

□ Internal users - users within the organization.
• Internalusers and questions they may ask:

|Marketing |What price will maximize the company’s net income? |
|Human Resources |Can we afford to give employees pay raises this year? |
|Finance |Is cash sufficient to pay dividends tostockholders? |
|Management |Which product line is most profitable? What should be eliminated? |



□ External users - users who are outside the organization.
• External users and questions they may ask:

|Investors (current and potential) |Is thecompany earning satisfactory income? How does the company compare in size and profitability with competitors? |
|Creditors (suppliers and bankers) |Will the company be able to pay its debts as they come due? |
|IRS, SEC, FTC, laborunions, customers |Is the company complying with rules and regulations? Is the company properly paying its taxes? |

Ethics in financial reporting
• In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals.

• Effective...