Financial Management
Summary
Chapter 1, 2 & 3
,Chapter 1:
Business: a business is an organization in which resources (inputs) such as materials and
labour are assembled and processed to provide goods or services (outputs to customers).
Types of business
Service business= provides services such as transportation, entertainment and legal
services.
Merchandising business= provides products from products they buy from other companies.
Manufacturing business= provide products that they manufacture like cars, food or
computers.
Role of accounting
Accounting= provides information to managers on how to operate their business and provide
information on the economic activities and condition of a business.
Managerial accounting= is the area of accounting that provides information for internal
users. Objective is to provide relevant and timely information for decision-making needs.
Financial accounting= is the area of accounting that provides external users such as
investors with information. Objective is to provide relevant and timely information for
decision-making needs.
Role of ethics in accounting and business
Ethics= are the moral principles that guide the conduct of individuals.
Sarbanes-oxley act (SOX) = as a result of fraud, congress passed laws to monitor behavior
of accounting and business by introducing this act. introduced standards for independent
corporate responsibility and disclosure.
Generally accepted accounting principles (GAAP)
Accounting standards= rules that determine the accounting for individual business
transactions.
Accounting principles and assumptions= provide the framework upon which accounting
standards are constructed.
Accounting equation
Assets= liabilities + equity
Assets - liabilities= stockholder’s equity
, Business transactions= is an economic event that should be recorded in accounting records.
Revenue = the amount of sold goods or services to customers. fees earned, sales,...revenue
Dividends= are distributions of earnings to stockholders.
Stockholders equity
Common stock= shares of ownership distributed to investors.
Retained earnings= is the stockholder’s equity created from business operations through
revenue and expense transactions.
Financial statements
Financial statements= the accounting reports providing information about the transactions.
Income statement= Records the revenue and expenses for a period of time, the excess of
the revenue over the expenses is called net income, otherwise net loss.
→ net income
Retained earnings statement= reports the changes in the retained earnings for a period of
time, it is prepared after the income statement.
→ retained earnings
Balance sheet= reports the amount assets, liabilities and stockholders equity, this form of
balance sheet is called report form.
→ cash
Forms of business
Proprietorship= business owned by one individual.
Partnership= people working together and all take direct share on the ownership.
Corporation= owners of the business aren't directly owners of the assets, they have a share
in assets.
LLC= Hybrid form between partnership and corporation, instead of shareholders getting
profit, partners do.
Summary
Chapter 1, 2 & 3
,Chapter 1:
Business: a business is an organization in which resources (inputs) such as materials and
labour are assembled and processed to provide goods or services (outputs to customers).
Types of business
Service business= provides services such as transportation, entertainment and legal
services.
Merchandising business= provides products from products they buy from other companies.
Manufacturing business= provide products that they manufacture like cars, food or
computers.
Role of accounting
Accounting= provides information to managers on how to operate their business and provide
information on the economic activities and condition of a business.
Managerial accounting= is the area of accounting that provides information for internal
users. Objective is to provide relevant and timely information for decision-making needs.
Financial accounting= is the area of accounting that provides external users such as
investors with information. Objective is to provide relevant and timely information for
decision-making needs.
Role of ethics in accounting and business
Ethics= are the moral principles that guide the conduct of individuals.
Sarbanes-oxley act (SOX) = as a result of fraud, congress passed laws to monitor behavior
of accounting and business by introducing this act. introduced standards for independent
corporate responsibility and disclosure.
Generally accepted accounting principles (GAAP)
Accounting standards= rules that determine the accounting for individual business
transactions.
Accounting principles and assumptions= provide the framework upon which accounting
standards are constructed.
Accounting equation
Assets= liabilities + equity
Assets - liabilities= stockholder’s equity
, Business transactions= is an economic event that should be recorded in accounting records.
Revenue = the amount of sold goods or services to customers. fees earned, sales,...revenue
Dividends= are distributions of earnings to stockholders.
Stockholders equity
Common stock= shares of ownership distributed to investors.
Retained earnings= is the stockholder’s equity created from business operations through
revenue and expense transactions.
Financial statements
Financial statements= the accounting reports providing information about the transactions.
Income statement= Records the revenue and expenses for a period of time, the excess of
the revenue over the expenses is called net income, otherwise net loss.
→ net income
Retained earnings statement= reports the changes in the retained earnings for a period of
time, it is prepared after the income statement.
→ retained earnings
Balance sheet= reports the amount assets, liabilities and stockholders equity, this form of
balance sheet is called report form.
→ cash
Forms of business
Proprietorship= business owned by one individual.
Partnership= people working together and all take direct share on the ownership.
Corporation= owners of the business aren't directly owners of the assets, they have a share
in assets.
LLC= Hybrid form between partnership and corporation, instead of shareholders getting
profit, partners do.
