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The department store Target started out small in 1902 as a store called Dayton Dry Goods Company in Minneapolis, Minnesota. In order for Target to grow over the years, it needed access to money.
2 primary sources of money for a company:
a loan and
sell a piece, or pieces, of ownership in company to investors.
Lenders and investors want returns on their investments.
These groups use information to assess the risks and rewards of giving a company money.
Accounting is the language of business. It is the method companies use to communicate financial information to people outside the company.
Illustration: this is accounting
Illustration: this is accounting
Indications that investors use accounting information
Indications that investors use accounting information
In this example, Apple released its financial statement to investors and immediately after there was change in Apple's stock price.
Providers and users of financial information
Providers and users of financial information
There are 4 primary financial statements
There are 4 primary financial statements
Balance sheet: Measured at a point in time. List everything the company owns, owes, and the difference between the two, called shareholders' equity.
Income statement: Measured over a period of one year. Displays sales, expenses, and the net of the two called income or profit.
Statement of cash flows: Measured over a period of one year. Reconciles beginning cash balance to ending cash balance.
Statement of shareholders' equity: Measured over a period of one year. Summarizes how shareholders' equity changed during the year.
Definition of financial reporting
Definition of financial reporting
Financial reporting is the process of providing financial information to people outside of the company.
The economic environment and financial reporting
The economic environment and financial reporting
US: highly developed, free-enterprise, economy. [01]
A majority of resources are owned by private citizens and companies and not the government.
When the economy is operating efficiently, capital providers (investors and lenders) give money to companies and people that provide goods and services most desired by society.
Capital markets: Capital is money used by companies to invest. A capital market is a market where capital providers can allocate money to worthwhile investments.
3 types of businesses
3 types of businesses
Sole proprietorship: A business that is owned and run by one person. There's no legal distinction between the owner and business entity.
Partnership: Similar to a sole proprietorship, but owned by two or more people.
Corporation: Business owned by shareholders who obtain ownership through public stock sales. Lots of owners.
Example of why accounting matters
Example of why accounting matters
Footnotes
[01] Free enterprise: An economic system in which private business operates in competition and largely free of state control.Footnotes
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