Essay on Proprietorship: Generally Accepted Accounting Principles and Net Income

Submitted By CorinneSmith
Words: 638
Pages: 3

Proprietorship
Generally owned by one person
Simple to establish
Owner controlled
Tax advantages
Partnership
Simple to establish
Shared control
Broader skills and resources
Tax advantages
Corporation
Easier to transfer ownership
Easier to raise funds
No personal liability
Accounting
The information system that identifies, records, and communicates the economic events of an organization to interested users
Internal users
Finance
Management
Human resources
Marketing
External users
Taxing authorities
Customers
Regulatory agencies
Labor unions
Creditors
Investors
All businesses are involved in three types of activity:
Financing
Investing
Operating
The accounting information system keeps track of the results of each of these business activities
Financing activities
Two primary sources of outside funds are
Borrowing money
Amounts owned are called liabilities
Party to whom amounts are owed are creditors
Notes payable and bonds payable are different type of liabilities
Issuing shares of stock for cash
Payments to stockholders are called dividends

Companies prepare four financial statements from the summarized accounting data:
Balance sheet
Income statement
Retained earnings statement
Statement of cash flows
Net income
Revenues exceed expenses
Is needed to determine the ending balance in retained earnings
Net loss
Expenses exceed revenues
Reports revenues and expenses for a specific period of time.
Past net income provides info for predicting future net income.

Retained earnings
Is the amount of net income retained in the corporation
Statement shows amounts of changes in retained earnings during the period.
Time period is the same as that covered by the income statement.
Users can evaluate dividend payment practices.

Ending balance
In retained earnings is needed in preparing the balance sheet
Reports assets and claims to assets at a specific point in time. * Assets= liabilities + stockholders equity * Lists assets first, followed by liabilities and stockholders equity

Annual report
Us companies that are publicly traded must provide shareholders with an annual report
Annual report always includes:
Financial statements
Management discussion and analysis
Notes to the financial statements
Independent auditor’s report
Management discussion and analysis
Covers the companies ability to pay near term obligations, its ability to fund operations and expansion, and its results of operations

Assets
Current assets
Long term investments
Property, plant, and equipment
Intangible assets
Liabilities and stockholders equity
Current liabilities
Long term liabilities
Stockholders equity * Operating cycle
The average time it takes from the purchase of inventory to the collection of cash from customers

Intangible assets
Assets that don’t have…