Introduction to the principles of accounting

1. Principles of AccountingAccounting In BusinessLearning Plan 1 Karen Bidwell September 2011

2. Technology Tools Used Microsoft Power point -Snap shot statements - Outlines concepts -User friendly Blog VOKI -New tool on accepted list provided -Flexibility of application Facebook

3. ( Electronic Learning And Teaching Exchange ) (Oddcast inc) (blogger) http://karen-simpleliving.blogspot.com/ Check out my new blog using VOKIs Introducing accounting!!!! (Facebook)

4. Business Organization Options 1 Sole proprietorship Advantages: total control; ease of start-up Disadvantage: one owner; sole liability; personal tax rate; limited financial access; sale/transfer difficulties 2 Partnership Advantages: easy to start; greater access to funds; may extend partnership to employees; combined talents, shared liability Disadvantage: joint owners; need partnership agreement; shared decision making; shared gains (Sole Proprietorship vs. Partnership vs. Limited Liability Company (LLC) vs. Corporation)

5. Business Organization Options 3 Limited Liability Corporation Advantages: limited liability; lower corporate tax rates Disadvantages: more difficult to create; structuring complexities 4 Corporation Advantages: many shareowners; taxed at corporate rate; limited liability; own entity Disadvantages: limited control; time hungry to establish; dividends not deducted from business income

6. Ownership Organization Option Organization structure-Limited Liability Corporation Rational limited individual liability ability to transfer ownership tax structure allows for operating agreement legal entity without all the shareholder hassles (Sole Proprietorship vs. Partnership vs. Limited Liability Company (LLC) vs. Corporation)

7. Business Activities Financing/Operating/Investing Financing Where is the money/credit coming from to start-up and initially run the business Operating Monies obtained from the selling of product/service; earned revenue/profits Investing Obtaining possession of assets that allow for initial business operations and for future growth (Warren, 2001)

8. Operating Activities Customers purchase a product(land/home) Pro: sales generate revenue Con: operating costs/expenses related to business operations, supplier expenses Must own the land before it can be developed Customers purchase a service(development of infrastructure) Pro: may not require as many tangible assets if company works as middle management to develop land Con: may be more difficult justifying the cost of your service as something one really needs to have (Warren, 2001)

9. Financing Sources Financial Lending institutions/borrowing/loan Vendor/supplier Pro: possible tax benefits, potential ability to obtain sizable amounts in a sort period of time Con: incurs creditor liability/accounts payable; may come with short repayment period; bonds require interest to be paid Owner investment: stock shares/LLC partners Pro: stockholders/LLC partners are not entitled to regular payments like creditors Con: creditors notes are paid off before stockholders (Warren, 2001)

10. Investing Activities Purchasing tangible assets (machinery/office) Pro: ownership provides credibility when debts are paid Con: tangibles depreciate, ownership for upkeep needs Purchasing intangible assets (land rights) Pro: long term asset/assures future niche market related to patent or copyright, etc.. Con: Expensive, patents/copyright expire loosing niche (Warren, 2001)

11. Major Financial Statements

12. Income Statement Purpose Reflect profit or loss/financial condition of a business How is it used in decision making Over time, a business must make a profit Provides a fast snap shot of net income or net loss Glimpse to the financial health of a company Is it worth investing in- providing a loan to- applying for a job, etc… (Warren, 2001)

13. Balance Sheet Purpose Reflects financial condition at a specific point in time Indicator of financial health How is it used in decision making Indicates the financial health/value of the company, at a given point in time Lists the sources of revenue and uses of company money Accounting equation assets= liabilities + stockholders’ equity (Warren, 2001)

14. Retained Earnings Statement Purpose Reflects the amount of net income retained by the business organization How is it used in decision making Potential indicator or good management Does it use its retained earnings to generate more money /dividend payouts BRE+ (NI-D)= CRE Beginning retained earnings (BRE) Net income (NI) - Dividends(D) Current retained earnings (CRE) (Warren, 2001)

15. Statement of Cash Flows Purpose Financial overview of all business activity over a period of specified time How is it used in decision making Creditors use to determine if the company is strong enough to pay them Employees reference for success of the business as it relates to employment security Stockholders use the data to determine the safety of the company as an investment (Warren, 2001)

16. Use of Financial Information External stakeholders Capital market stakeholders( banks)want to receive original investment and interest Suppliers/if my company goes under they have lost an avenue for sale of their product/service that I have been purchasing Product or service market stakeholders (customers)want company to succeed so product or service will be available to them in the future Government (all levels) provide a tax base and employment Community partners partnerships may be affected if the service or product you provide make it possible for them to be effective/you go out of business and they no longer have a place to meet. (Warren, 2001)

17. Use of Financial Information Internal Stakeholders Owner(s) want to see their dream succeed/used to obtain more investors/capital/continue to grow Employees/Managerswant jobs/want the company to continue and to grow for job security Board members, usually have some stock ownership and do not want to loose their investment (Warren, 2001)

18. Sources Advantages of Incorporating or Forming an LLC. (n.d.). Retrieved September 02, 2011, from My New Company, Startups made easy: http://www.mynewcompany.com/advantages.htm Electronic Learning And Teaching Exchange . (n.d.). Retrieved September 03, 2011, from ELATE Wiki: http://elatewiki.org/index.php/Voki Oddcast Inc. (n.d.). create a VOKI. Retrieved September 3, 2011, from VOKI: http://www.voki.com/ Sole Proprietorship vs... Partnership vs.. Limited Liability Company(LLC) vs.. Corporation vs.. S Corporation. (n.d.). Retrieved September 2011, from small business solutions: http://www.residual-rewards.com Warren, C. S. (2001). Survey of Accounting. Mason: South-Western Cengage Learning.