Summary of Financial Accounting Chapter 1
Learning Objective 1.1
Understanding the business
Creditors make money on the loans by charging interest.
Dividends a portion of what a company earned in the form of cash payments.
(winstaandeel)
The Accounting System
Managers Internal decision makers.
Stockholders and creditors External decision makers.
All businesses must have an accounting system, that collects and processes
financial information about an organization’s business activities, and reports that
information to decision makers.
Business activities
- Financing activities borrowing or paying back money to lenders and
receiving additional funds from stockholders or paying them dividends.
- Investing activities buying or selling items such as plant and equipment
used in the production of beverages.
- Operating activities the day-to-day process of purchasing raw tea and
other ingredients from suppliers, manufacturing beverages, delivering
them to customers, collecting cash from customers, and paying suppliers.
The four basic financial statements
1. Balance sheet a company reports of the economic resources it owns
(assets, liabilities and stockholders’ equity) and the sources of financing
for those resources.
2. Income statement a company reports its ability to sell goods for more
than their cost to produce and sell. (reports the revenue – expense)
3. Statement of stockholder’ equity a company reports additional
contributions or payments to investors and the amount of income the
company reinvested for future growth. (reports the way net income and
distribution of dividends affected the financial position of the company)
4. Statement of cash flows a company reports its ability to generate
cash and how it was used.
, The balance sheet
Purpose to report the financial position(amount of assets, liabilities and
stockholder’ equity) of an accounting entity at a particular point in time.
Structure
1. Name of the entity
2. Title of the statement (balance sheet)
3. Specific date of the statement
4. Unit of measure
The balance sheet equation :
Assets = Liabilities + Stockholders’ equity
Assets economic resources owned by a the entity
Current assets :all cash and other assets that a company expects to convert to
cash or sell or consume within 1 year
- Short term investments
- Accounts receivable
- Inventories (wholesalers and retailers merchandise held for sale
and manufacturers raw materials, goods in process of being
manufactured and finished products.
- Prepaid expense advance payments to suppliers (rent, insurance etc.)
Non-current assets
1. Tangible assets: property, plant and equipment (fixed asset) land is also a
fixed asset but written down separately.
- The value of the fixed assets is declining in time due to depreciation.
2. Intangible assets rights to future benefits (franchises, patents,
trademarks, copyrights
Depreciation = to allocate the assets original cost to the particular periods
that benefits of the use of the asset.
On the balance sheet original price – cumulated depreciation = net book
value!!
Residual value the amount a company expects to receive at the end of the
economic value
Depreciable amount purchase price – residual value.
Learning Objective 1.1
Understanding the business
Creditors make money on the loans by charging interest.
Dividends a portion of what a company earned in the form of cash payments.
(winstaandeel)
The Accounting System
Managers Internal decision makers.
Stockholders and creditors External decision makers.
All businesses must have an accounting system, that collects and processes
financial information about an organization’s business activities, and reports that
information to decision makers.
Business activities
- Financing activities borrowing or paying back money to lenders and
receiving additional funds from stockholders or paying them dividends.
- Investing activities buying or selling items such as plant and equipment
used in the production of beverages.
- Operating activities the day-to-day process of purchasing raw tea and
other ingredients from suppliers, manufacturing beverages, delivering
them to customers, collecting cash from customers, and paying suppliers.
The four basic financial statements
1. Balance sheet a company reports of the economic resources it owns
(assets, liabilities and stockholders’ equity) and the sources of financing
for those resources.
2. Income statement a company reports its ability to sell goods for more
than their cost to produce and sell. (reports the revenue – expense)
3. Statement of stockholder’ equity a company reports additional
contributions or payments to investors and the amount of income the
company reinvested for future growth. (reports the way net income and
distribution of dividends affected the financial position of the company)
4. Statement of cash flows a company reports its ability to generate
cash and how it was used.
, The balance sheet
Purpose to report the financial position(amount of assets, liabilities and
stockholder’ equity) of an accounting entity at a particular point in time.
Structure
1. Name of the entity
2. Title of the statement (balance sheet)
3. Specific date of the statement
4. Unit of measure
The balance sheet equation :
Assets = Liabilities + Stockholders’ equity
Assets economic resources owned by a the entity
Current assets :all cash and other assets that a company expects to convert to
cash or sell or consume within 1 year
- Short term investments
- Accounts receivable
- Inventories (wholesalers and retailers merchandise held for sale
and manufacturers raw materials, goods in process of being
manufactured and finished products.
- Prepaid expense advance payments to suppliers (rent, insurance etc.)
Non-current assets
1. Tangible assets: property, plant and equipment (fixed asset) land is also a
fixed asset but written down separately.
- The value of the fixed assets is declining in time due to depreciation.
2. Intangible assets rights to future benefits (franchises, patents,
trademarks, copyrights
Depreciation = to allocate the assets original cost to the particular periods
that benefits of the use of the asset.
On the balance sheet original price – cumulated depreciation = net book
value!!
Residual value the amount a company expects to receive at the end of the
economic value
Depreciable amount purchase price – residual value.
