ACC 231
MW 12:15
Chapter 1
○ Ch.11
● Statement of Stockholders’ Equity
○ Subset: statement of retained earnings: accumulation of all net income earned.
How to we measure
● US GAAP standards followed
● All other countries IFRS
SEC (Security and Exchange Commision) job is to protect the investor
● Ultimately FASB job of creating the standards
Legal forms of Businesses (EXAM 1 MATERIAL)
● Sole Proprietorship- ex. Painting houses
○ Easy to set up, income taxed once at individual level
○ Con: no limited liabilty. Person and business are one in the same, no
separation of assets between the business and the owner. You cannot sell the
business, but you can sell assets of the business.
● *Corporation- Seperate legal entity from the owner
○ Pro: assets of owners are seperate. Limited liability
○ Con; double taxation, more difficult to set up.
● Limited Liability Corp.(LLC)- Legal separation of owners and business but owners not
double taxed.
○ What type of company can create an LLC is different in every state, different
restrictions.
TYPES OF BUSINESSES
● For Profit- WalMart, Apple, Google.
○ Goal is for revenue to exceed expenses.
■ Revenue; generated by providing a good or service.
■ Expenses: resources used in the production of revenues. (or cost incurred
to generate revenue).
● Not for Profit- United Way, Red Cross, etc.
Income Statement
●Revenues: amount recieved for providing a good or service
●Expenses(costs):
○ Resources (assets) used up to produce revenues
○ Costs incurred in order to provide goods or services to customers
Financial statements:
● Income statements
● Balance Sheet
● Statement of Cash Flows
● PROFIT OR NET INCOME = REVENUES - EXPENSES
● Revenues and Expenses found on Income statements
○ Revenues and expenses are nominal (temporary) accounts and get closed to
zero at the end of every fiscal year.
EX.
Income Statement
For the period ending 12/31/2019
Revenues $250,000
Expenses $75,000
Net Income $175,000
Balance Sheet
● Snapshot of the financial health of a company
● Assets - Liabilities= Stockholders Equity
○Or Assets= Liabilities + Stockholders Equity
● Asset: a resource that a business owns and can control which we expect to provide a
benefit in the future. (Cash, Inventory, Building, Equipment)
● Stockholders Equity- The value of the shareholder’s( owners) interest in the company.
○ The amount of capital invested by stockholders (common stock) plus profits
retained over the life of the company (Retained Earnings)
■ Private equity- Owner’s Equity
● Assets, liability, stockholders equity of accounts are found on the Balance Sheet.
EX.
Balance Sheet
As att 12/31/2019
Assets $600,000
Liability $100,000
Stockholders Equity $500,000
Statement of Retained Earnings
● Details what net income the company has kept the company and what it has paid out (in
dividends) to its owners/ stockholders
○ Beginning Retained Earning
○ +/- Net income/ loss for the year
○ - dividends during the year
○ = Ending retained earnings
EX.
Statement of Retained Earnings
Beginning of retained earnings $800,000
ADD Net Income +$175,000
LESS - Dividends -$ 50,000
Ending Retained Earnings $925,000
