Financial Accounting/Finanzbuchführung (For Exam Ch.

1-7)

Who is interested?
= STAKEHOLDERS: Everyone interested in the company (Stakeholders, Government, Employees, Suppliers,
Unions, Banks, shareholders, debt investors, IRS)
Sole Proprietorship Partnership Corporation
(Einzelinhaber)
-simple to establish -Easy to establish -separate legal entity owned
by stockholders in shares
-personally liable -retail or service-type -organized under state
corporation law
-tax advantages Tax advantages -Not personally liable

-not easy to transfer to -two or more -Easier to raise funds

successor

In order to borrow money, -personally liable Unfavorable tax treatment

securities are needed
Easy to transfer ownership
Own 50% of shares to maintain
in charge!

For Whom Accounting?

1. Internal Users: Management, Human Resource, Finance, Marketing, Employees

2. External Users: Customers, Creditors*, Investors, Unions, Government Bodies, SEC, IRS
*someone who borrowed the company money

Business Activities
All businesses are involved in:
1. Investing
2. Financing (raising money by raising equity or debt)
3. Operating (generate revenue)

Balance Sheet (3)

Refers to a specific date
What company owns (assets)
What company owes (liabilities)
Yearly or quarterly

1. Investing Activities
Using cash raised through financing to purchase resources needed for operating
 ASSETS= Resources owned by a business and needed for operating
For example: cash, supplies, property, plant, equipment
 1. Financing Activities
Getting cash from sources outside the firm by:
a) Borrowing money from creditors (debt financing)
Creates ->Liabilities (amounts owed) cause -> interest payments (Zinszahlungen)

Notes payable (bank loan)

Bonds payable (debt securities sold to investors)
Accounts payable (goods on credit from suppliers)

b) Issuing shares of stock for cash (equity financing)

Stockholders equity => Dividend payments
Common stock (sell stock to shareholders who become part-owners of the company)
Retained earnings

Income Statement (1)

Show’s success or failure of company’s operations during a period.
1. Operating Activities
Once a business has the assets it needs, it can begin its operations/transactions

 Revenues = Amounts earned from the sale of products (sales revenue, service
revenue, interest revenue) price x units sold
 Expenses = cost of assets consumed or services used (cost of goods sold, selling,
marketing, administrative, interest and income taxes expenses)
 Liabilities arising from expenses include accounts, interest, wages, sales taxes
and income taxes payable
 Net income ( REV > EXP=NET INCOME / REV < EXP=NET LOSS

Financial Statement / Retained Earnings Statement (Finanzbericht) (2)

Goes into balance sheet
What proportion of income is paid out to shareholders for a certain period of time and how much is kept
within the company? Net Income:
Dividends

Retained Earnings
 Statement of cash flows (Geldflussrechnung) (4)

 C ash effects of a company’s financing, investing and operating activities during a period
 Where was cash earned and how was it used?
 Where did cash come from
 How was cash used
 What was the change in the cash balance during the period
 Flow in and out!