Lernmaterialien für ACCT an der Hochschule für Wirtschaft und Umwelt Nürtingen-Geislingen

Accounting is the process of gathering, compiling and reporting of a financial history of an organisation 

The financial history summarized can be used to inform present and future decisions.

Raise money to start and continue business 

a. Invested money – is obtained by selling stock to investors. This is called **equity, which represents the owner’s share of the business

 i. Permanent financing 

ii. Stockholders own the company 

b. Borrowed money – must be repaid. This is called a **liability. 

i. Not permanent financing

 ii. Lenders called creditors

financing Activities

investing Activities

Operating Activities 

Sole proprietorship (one owner) b. Partnership (two or more owners) 

Simple to establish; tax advantages Difficult to transfer ownership; proprietor (partners) personally liable for all business debts 

Corperation

Separate legal entity 

ii. Increases ability to raise $ (stock sales and debt) 

iii. Easier transfer of ownership (shares can be bought and sold easily)

iv. Limited liability of owners: Stockholders are liable for the corporation’s debt only to the extent of their investment in the company

Limited access to information o Financial accounting prepares information primarily for outside users o Examples:

Stockholders – Is company earning satisfactory income? How does the company compare to other companies? 

 Creditors – Will company be able to pay its debts as they come due?

  Govt. Agencies – Is company operating under prescribed laws and rules?

  Others – Suppliers, customers, labor unions

solo proprietorship (one owner)

Partnership (two or morre owners)

crperation

money obtained from financing is used to purchase resources a company needs to operate

= resources owned by the business which can generate future economic benefit (resource company controls

Day to day business of producting and/or selling a roduct or performing a service which result in revenue and expanses

• -Revenue=inflow of assets (Cash ) as a result oof:

performing a service OR

delivering the goodsd

--> earned from sale of products and services

Revenue is  not always cash recived) 

• Expenses=costs incurred to generate revenues the usoong up of a resource asst to help generate revenue

Expenses are the cost of assets consumed r services used in the process of generating revenue

internal users

external users

Easier access to information than external users 

 Management accounting provides managers with information needed to plan and control their areas of responsibility 

Examples:  Finance Manager – Is cash sufficient to pay dividends to shareholders?

  Marketing Manager – What product price will maximize income? 

 Human Resource Manager – Can company afford employee raise?

  Management – Which product line is most profitable? Should any product line be eliminated? 

 I.T. Manager – How can accounting information be integrated for all users needing it?