Taxi Company for Sale - PowerPoint

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					Chapter 1
    `
     Forms of Business
       Organizations
 Sole Proprietorship - owned by one
  person
 Partnership - owned by more than
  one person
 Corporation - organized as a
  separate legal entity and owned by
  stockholders                     2
         Users of Financial
           Information
 Internal Users - managers plan, organize
  and run a business.
 External Users -
   Investors
   Creditors
   Others
        Taxing authorities
        Regulatory agencies
        Customers
        Labor unions
                                             3
        Economic planners
   Questions Asked by
     Internal Users
 Is cash sufficient to pay bills?
 What is the cost of manufacturing each unit
  of product?
 Can we afford to give employee pay raises
  this year?
 What product line is most profitable?


                                            4
   Questions Asked by
     External Users
 Is the company earning satisfactory
  income?
 How does the company compare in size and
  profitability with competitors?
 Will the company be able to pay its debts
  when they become due?



                                              5
          Basic Terms

 Assets - resources owned by a business
 Liabilities - debts and obligations of
  the business
 Common stock - stock representing the
  primary ownership interest in a
  corporation

                                       6
3 Types of Business Activity

 Financing
 Investing
 Operating


                           7
 Financing Activities
  It
Takes
MONEY
  to
 Make
MONEY!
                        8
   Two Ways of Outside
 Financing of a Corporation

 Borrowing Money
  (liabilities)
 Selling Shares of
  Stock



                              9
      Investing Activities
            Obtaining the
         Resources or Assets
    needed to operate the business
        Examples of assets...
   Cash
   Accounts Receivable
   Inventory
   Buildings, Equipment, Furniture   10
   Investing Activities -
        Examples

 Purchase or Sale of computers,
  delivery trucks, furniture, buildings
  (any long term asset to be used in the
  business)
 Purchase or Sale of investments in
  other companies
                                           11
     Candy




Operating activities are the main activities
for which the organization is in business.
                                         12
  What Are Revenues?

Revenues result from sale of a
     product or service.




                                 13
   Examples of Revenues

Taxi Company - sells services

Theatre - sells services & products

Retail Store - sells products


                                      14
      What Are Expenses?

Expenses are the costs of assets
consumed or services used to
generate revenues. Examples...
   Cost of sales
   Store operating expenses
   General and administrative expenses
   Interest expense
                                          15
   Examples of Expenses

 Taxi Company - gasoline,
  maintenance, insurance
 Theatre - salaries, supplies, film rental,
  concessions to resale
 Retail Store - utilities, taxes, rent,
  supplies, salaries

                                           16
           Net Income

Net Income is the excess of revenues
over expenses.
    Revenue                $10,000
    Expenses                 3,000
    Net income             $ 7,000
A Net Loss would result if expenses
were greater than revenues.
                                       17
      Financial Accounting
          Statements
 Income Statement - reports the results of
  operations for a specific period of time
 Retained Earnings Statement - reports the
  changes in retained earnings for a specific
  period of time
 Balance Sheet - reports the assets, liabilities,
  and stockholders’ equity at a specific date
 Statement of Cash Flows - reports the cash
  receipts and payments for a specific period of
  time
                                                 18
   Accounting Equation

Assets = Liabilities + Stockholders’ Equity




             A=L+E
                    or

              E=A-L
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  From Page 14
         Remember...

    Remaining
Liquid and Solvent
is as important as
 making a profit
    because...
A Company May Survive a Long
Time Without Profits...
    but It Can’t
     Survive
    Very Long
     Without

    CASH!
Elements of an




  Financial Statements
      Income Statement
      Statement of Retained Earnings
      Balance Sheet
      Statement of Cash Flows
  Management Discussion and Analysis
  Notes to Financial Statements
  Auditor's Report
 Management Discussion
     and Analysis

Covers three aspects of a company:
   liquidity - ability to pay near-term
    obligations
   capital resources - ability to fund
    operations and expansions
   results of operation

                                           24
Notes to Financial Statements
  Provide additional information not
   included in body of statements
  Examples:
    Description of accounting policies or
     explanation of uncertainties and
     contingencies
    Statistics and voluminous details
                                             25
           Auditor's Report
 Auditor, a professional accountant who
  conducts an independent examination of the
  financial accounting data presented by a
  company.
 Auditor gives an unqualified opinion if the
  financial statements present the financial
  position, results of operations, and cash flows
  in accordance with GAAP.                     26
                    Illustration 1-13



Monetary Unit Assumption
                     Illustration 1-13



Economic Entity Assumption
                   Illustration 1-13



Time Period Assumption
                   Illustration 1-13



Going Concern Assumption
                 Illustration 1-14

Cost Principle
                             Illustration 1-14




Full Disclosure Principle


         Illustration 1-14
Do It - Page 14
         CSU CORPORATION
            Income Statement
  For the Year Ended December 31, 2001




1st- head up the statement
•name of company
•name of statement
•period of time covered
        CSU CORPORATION
           Income Statement
 For the Year Ended December 31, 2001


 Revenues
   Service revenue             $17,000




2nd - List the revenues
        CSU CORPORATION
           Income Statement
 For the Year Ended December 31, 2001


 Revenues
   Service revenue             $17,000
 Expenses
   Rent expense           $9,000
   Insurance expense       1,000
   Supplies expense          200
   Total expenses                  10,200



3rd - List and total the expenses
         CSU CORPORATION
           Income Statement
 For the Year Ended December 31, 2001


 Revenues
    Service revenue            $17,000
 Expenses
    Rent expense          $9,000
    Insurance expense      1,000
    Supplies expense         200
    Total expenses              10,200
 Net Income                    $ 6,800


4th - Subtract expenses from
revenues to obtain net income.
        CSU CORPORATION
      Retained Earnings Statement
 For the Year Ended December 31, 2001



1st- head up the statement
•name of company
•name of statement
•period of time covered
       CSU CORPORATION
     Retained Earnings Statement
For the Year Ended December 31, 2001




 Retained earnings, January 1   $      0




 2nd - Start with beginning
 retained earnings
        CSU CORPORATION
     Retained Earnings Statement
For the Year Ended December 31, 2001




  Retained earnings, January 1   $       0
  Add: Net Income                    6,800
                                     6,800




3rd - Add net income from the
current year - subtotal
        CSU CORPORATION
     Retained Earnings Statement
For the Year Ended December 31, 2001




  Retained earnings, January 1     $     0
  Add: Net Income                   6,800
                                     6,800
  Less: Dividends                        0
  Retained earnings, December 31   $ 6,800



4th - Subtract current year’s
dividends and total
      CSU CORPORATION
          Balance Sheet
        December 31, 2001




1st - head up the statement
•name of company
•name of statement
•date
          CSU CORPORATION
               Balance Sheet
             December 31, 2001

                      Assets
Cash                             $ 2,000
Accounts receivable                4,000
Supplies                           1,800
Equipment                         16,000
Total assets                     $23,800




2nd - list the assets and total
           CSU CORPORATION
                Balance Sheet
              December 31, 2001

                             Assets
Cash                                                  $ 2,000
Accounts receivable                                     4,000
Supplies                                                1,800
Equipment                                             16,000
Total assets                                          $23,800
               Liabilities and Stockholders’ Equity
Liabilities
  Accounts payable                                    $ 2,000
  Notes payable                                         5,000
      Total liabilities                                 7,000

3rd - list the liabilities and
sub-total
     CSU CORPORATION
         Balance Sheet
       December 31, 2001




4th - list stockholders’ equity
subtotal. Add to liabilities,
Total
           CSU CORPORATION
                 Balance Sheet
               December 31, 2001

                             Assets
Cash                                                   $ 2,000
Accounts receivable                                      4,000
Supplies                                                 1,800
Equipment                                              16,000
Total assets                                           $23,800
                Liabilities and Stockholders’ Equity
Liabilities
  Accounts payable                                     $ 2,000
  Notes payable                                          5,000
      Total liabilities                                  7,000
Stockholders’ equity
  Common stock                               10,000
  Retained earnings                            6,800
        Total Stockholders’ equity                     16,800
Total liabilities and stockholders’ equity             $23,800
   If total assets and total
liabilities and stockholders’
         equity equal…

     double underline.
           CSU CORPORATION
                 Balance Sheet
               December 31, 2001

                             Assets
Cash                                                   $ 2,000
Accounts receivable                                      4,000
Supplies                                                 1,800
Equipment                                              16,000
Total assets                                           $23,800
                Liabilities and Stockholders’ Equity
Liabilities
  Accounts payable                                     $ 2,000
  Notes payable                                          5,000
      Total liabilities                                  7,000
Stockholders’ equity
  Common stock                               10,000
  Retained earnings                            6,800
        Total Stockholders’ equity                     16,800
Total liabilities and stockholders’ equity             $23,800
In what order are financial
   statements prepared?


        WHY?
51

				
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