...Owners’ Equity Paper In a corporation, owners’ equity is also known as stockholders’ equity, shareholders’ equity, or corporate capital. Owners’ equity is equal to the amount of net assets (Halliday, 2012). In this sense, the amount of owners’ equity will increase and decrease with profitability and loss, respectively (Kieso, Weygandt, & Warfield, 2010). Owners’ equity typically consists of capital stock, additional paid-in capital, and retained earnings (Kieso, Weygandt, & Warfield, 2010). This analysis will further explain owners’ equity. In particular, the three categories of capital, the importance of keeping paid-in capital separate from earned capital and which is more important to an investor, and whether basic or diluted earnings per share are more important to an investor. Paid-in capital and earned capital are two different types of funding available to an organization and should be kept separate. Paid-in capital consists of both capital stock and additional paid-in capital above the par value of stock, which is provided from the sales of stocks for use by the company (Kieso, Weygandt, & Warfield, 2010). Earned capital or retained earnings, however, is capital earned from the profitable operations of the company and retained for reinvestment (Halliday, 2012). Paid-in capital and earned capital must be kept separate to provide clear information to the users of financial statements. Users are interested in the amount of earned capital as this represents the ability...
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...their business operations. When viewing each entity separately, the company stands to gain and grow from selling their stock. The investor stands to gain by investing in a company in hopes that their stock prices will go up and they earn a profit. In truth, both parties depend heavily on one another. The more people invest, the more opportunity the company has to grow. The more leeway for the company to grow, the happier they are able to make their investors, who in turn spend more money. To further understand owner’s equity, paid in capital, earned capital, and earnings per share should be discussed. Paid in Capital vs. Earned Capital Paid in capital is what the business earns by issuance of stock. Paid in capital includes what is paid for capital stock plus any additional paid in capital. Additional paid in capital is money that is paid in addition to the par value of the stock. Generally speaking, paid in capital is money that the company has raised from equity rather than ongoing operations. Earned capital is the money that an organization has generated as a result of operations. Usually, new companies will hold onto this money as retained earnings to use for future growth. Many established companies, though, will pay dividends from earned capital. Paid in capital and earned capital must be kept separate do that investors can decipher between the two. While paid in capital is important to an organization, investors need to be able to see if the company is able to meet...
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...Analyzing Business Transactions LEARNING OBJECTIVES 1. 2. Record in equation form the financial effects of a business transaction. Define, identify, and understand the relationship between asset, liability, and owner’s equity accounts. Analyze the effects of business transactions on a firm’s assets, liabilities, and owner’s equity and record these effects in accounting equation form. Prepare an income statement. Prepare a statement of owner’s equity and a balance sheet. Define the accounting terms new to this chapter. LP2 Chapter NEW TERMS accounts payable accounts receivable assets balance sheet break even business transaction capital equity expense fair market value fundamental accounting equation income statement liabilities net income net loss on account owner’s equity revenue statement of owner’s equity withdrawals 3. 4. 5. 6. www.southwest.com Rollin King and Herb Kelleher had a simple notion when they got into the airline business: If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline. What began as a small Texas airline has grown to become one of the largest airlines in America. Today, Southwest Airlines flies almost 100 million passengers a year to 63 cities all across the country. In an economy where airlines struggle to stay out of bankruptcy, Southwest has flourished. Other airlines have tried to imitate...
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...this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees. What is accounting and why is it so important? Accounting is the financial information system that provides need to know information about your company. “Essential characteristics of accounting are identification, measurement, and communication of financial information about economic entities to interested parties” (Weygandt, p. 4, Para. 1). When you are in a business you have to identify events relevant to your company’s finances. Once you identify the facts you have to record these events. When recording you is providing a history of financial activities in a chronological diary to help you better understand your company’s revenues and expenses. After you summarize all collected information, you communicate to interested users by meaning of accounting reports. Accounting reports are referred to financial statements. Financial statements provide the overview of the financial condition of the business. Companies prepare four financial statements from the summarized accounting data. To understand the true financial state of a business one must understand the purpose of the four financial statements and what kind of information each statement presents. These statements are the income statement, owner’s equity statement...
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...Individual Assignment - Accounting Equation Paper Dennis R Ware ACC/300 October 1, 2012 Kimberly McMillon Individual Assignment - Accounting Equation Paper From the largest corporation all the way down to the mom and pop store, every business transaction will have an effect on a company’s financial position. According to Investopedia.com, the financial position of a company is measured by the following three things: assets, liabilities, and owner’s equity. The assets are what the company owns. The liabilities are what the company owes to others. The owner’ equity is the difference between the assets and liabilities. The accounting equation offers a simple way to understand how the three amounts relate to each other. The accounting equation for a sole proprietorship is as follows: Assets = Liabilities + Equity. The accounting equation for a corporation is as follows: Assets = Liabilities + Stockholders’ Equity. Examples of assets include cash, account receivable, and equipment (Kimmel, 2011). From the accounting equation, you can that the amount of the assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity. Examples of liabilities include notes payable, accounts payable, and salaries payable (Kimmel, 2001). Examples of owner’s or stockholders’ equity include common stock and retained earnings. The balance sheet is also known as the statement of financial position. It reflects the accounting equation. The balance sheet...
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...Accounting Equation Paper HH ACC/300 October 19, 2015 Douglas Hartman Accounting Equation Paper Whether the size of the organization is big or small, this organization must deal with financial statements; such as transactions coming in and transactions coming out that are going to impact the organization’s financial standing. In all the organizations, the accounting department plays a major role to ensure the organization’s succeed. The key role of the accounting department is to inspect records and track all the transactions that ate happening. Liabilities and Owner’s equity are the resources that are used to make the organization’s assets and accounting equation. Capitals influence owner’s equity; for example, issuing stocks. Once the business is up and running, income and also expenses will be added to the balance sheet (Tracy, 2015). Assets incorporate everything the organization maintains. There are two kinds of assets: the tangible assets such as property and equipment and intangible assets such as trademarks ("Asset", 2015). Liabilities are obligations the organization has, to different organizations or people. These account holders could incorporate merchants, workers, or financial foundations that lent cash. Equity is alluded to as capital and comprises of assets and any obligations owed to the business from external sources. To comprehend the accounting equation, the accounting division, and administration we must see how these identify with each other...
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...PR1-1A On September 1 of the current year, Maria Edsll established a business to manage rental property. She completed the following transactions during September: a. Opened a business bank account with a deposit of $40,000 from personal funds. b. Purchased supplies (pens, file folders, and copy paper) on account, $2,200. c. Received cash from fees earned for managing rental property, $6,000. d. Paid rent on office and equipment for the month, $2,700. e. Paid creditors on account, $1,000. f. Billed customers for fees earned for managing rental property, $5,000. g. Paid automobile expenses (including rental charges) for month, $600, and miscellaneous expenses, $300. h. Paid office salaries, $1,900. i. Determined that the cost of supplies on hand was $1,300; therefore, the cost of supplies used was $900. j. Withdrew cash for personal use, $1,800. .:. 1. Assets = Liabilities + Owner’s Equity Maria Maria Accts. Accts. Edsall, Edsall, Fees Rent Salaries Supplies Auto Misc. Cash + Rec. + Supplies = Payable + Capital – Drawing + Earned – Exp. – Exp. – Exp. – Exp. – Exp. a. + 40,000 + 40,000 b. + 2,200 + 2,200 Bal. 40,000 2,200 2,200 40,000 c. + 6,000 + 6,000 Bal. 46,000 2,200 2,200 40,000 6,000 d. – 2,700 – 2,700 Bal. 43,300 2,200 2,200 40,000 6,000 – 2,700 e. – 1,000 – 1,000 Bal. 42,300 2,200 1,200 40,000 6,000 – 2,700 f. ...
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...09:00 – 09:45Number of pages (check): 5 | Remarks: NO MOBILE TELEPHONES during examinations. Problem 1 (maximum 10 marks) At the beginning of the airline industry, an airplane could carry around 100 people. Nowadays, airplanes such as Airbus A380, can carry 800 people. Required: How is this phenomena called and explain why the industry is continuously looking at increasing capacity? Write your answer in this textbox only. Don’t write beyond the lines or on any other paper but this.This phenomena is called economies of scale.Increasing capacity means directionally lower average costs, since the fixed costs increase less than the cost of the increase in capacity.Example: an airplane requires two pilots, whatever its size. | Problem 2 ( maximum 10 marks) Explain the difference between efficiency and effectiveness. Give an example for both efficiency and effectiveness for Air-France/KLM. Write your answer in this textbox only. Don’t write beyond the lines or on any other paper but this.The term efficiency relates to the cost of the production process. An efficient production process manufactures a given quantity of products with the least possible costs.Example Air-France/KLM: the cost per passenger mileEffectiveness relates to the purpose of the production process. i.e. the degree to which the end product fulfills the requirements and wishes of the end-consumer.Example Air-France/KLM: the market share of Air-France/KLM . | Problem 3 ( maximum 10 marks) ...
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...Assignment 1: Annual Report Project Due week 8 Darrin Ingraham 08/15/2012 ACCT 100 – Introduction to Accounting Instructor: Professor Jerome Newman Abstract This paper is an overview of Wal-Mart’s Annual Report. The purpose of a corporate annual report is to communicate to stockholders and other interested parties its financial statements. The annual report is a summary of the corporation’s operations over the previous 12 month time period and states the corporation’s plans for the future. Many annual reports are created to resemble a corporate brochure, using lots of pictures, color, charts and graphs. Despite the fancy look, the main purpose of the report is to provide the year’s financial data, which comes from the corporation’s accounting system. This paper identifies and explains the main sections of the annual report. I try to discuss the key factors that influenced the company’s financial performance during the year and the primary assets held by the company. Lastly, I explain how management characterizes the internal control environment of the company. Identify and explain the main sections of the annual report. A company's annual report is a comprehensive report of its activities throughout the preceding year. They help in understanding the past performance of the company and making future predictions about the company. Annual reports are intended to give shareholders, employees, potential investors, banks, government agencies and...
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...Owner’s Equity Owner’s equity or shareholder’s equity is the residual interest in the assets of the organization after deducting all of its liabilities (What is Owner’s Equity, n.d.). In an organization, assets can either belong to people you owe money to (liabilities) or the owner itself. Therefore, owner’s equity can only represent what an owner can lay claim to. Owner’s equity or stockholders equity is usually listed under the balance sheet. Under the stockholder’s equity section you may find the paid-in capital and the retained earnings portion minus the treasury stock which comprises the total stockholder’s equity balance (Accounting Coach, n.d.). While as an investor it is important to pay attention to each aspect of the balance sheet; this paper will particularly focus on the importance of paid-in capital. Paid-in capital, which is also referred to as contributed capital is listed under stockholder’s equity in the balance sheet. It is the amount of capital that has been paid in during common or preferred stocks issuances by investors (Paid in Capital, n.d.). Important factors to note is that paid in capital does not come from operations but only from investors (Paid in Capital, n.d.). Keeping paid-in capital separate from earned capital is also important. Earned capital is money that a company receives as a result of profitable operations (Jacobsen & Wachterhauser, n.d.). Paid-in capital comes from the sale of capital stock (Jacobsen & Wachterhauser, n.d...
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...there are many options for an owner to choose from when it comes to accounting. Most options nowadays are accounting software applications of some kind, either web-based or stand-alone. However, some small businesses are still doing hard copy paper accounting, which is much more difficult in this day in age. Owner’s Equity One of the first concepts a new owner must understand is how he can determine his owner’s equity. This is a pretty simple business equation that can be best explained to be like the hands of justice, where they always need to be balanced. What happens on one end needs to happen on the other end to stay balanced. The equation is simply assets=liability+owners equity. This equation tells the owner where the company stands. The assets are what the company physically owns like work trucks and how much product. Where the liability is how much the company owes to place like bank loans, and taxes. Owner’s equity is the financial interest of the business owners. Like it was stated earlier there has to be a balance, which in this case means the assets have balance with the liability and owners equity. However if the owner wants to know how much equity he has the equation varies slightly. The equation is put imply as owners equity=Assets-liability. Which means...
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...Difficulty: Easy LO: 1 4. Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. Ans: False Difficulty: Easy LO: 1 5. The natural business year for most businesses is always the same as the calendar year. Ans: False Difficulty: Moderate LO: 1 6. The balance sheet shows whether or not the firm achieved its primary objective of earning a profit. Ans: False Difficulty: Easy LO: 1 7. Expenses are costs incurred or the using up of assets from generating revenue. Ans: True Difficulty: Easy LO: 1 8. Liabilities are defined as "the residual interest in the assets of an entity that remains after deducting its equity." Ans: False Difficulty: Easy LO: 1 9. A characteristic of assets is their ability to provide current benefits to the business. Ans: False Difficulty: Hard LO: 1 10. The cash flow statement measures the net effect of revenues and expenses for a specified period. Ans: False Difficulty: Easy LO: 1 11. A liability expressed by a written promise to make a...
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...The Four Financial Statements Daniel K. Lollis ACC/290 August 3, 2012 Sima Jalilizeinali The Four Financial Statements The four financial statements are formal records of the activities of a company, person or business entity. The four financial statements are balance sheets, income statement, statement of owner’s equity, and statement of cash flow. This paper will identify the four basic financial statements and describe the purpose for each. The balance sheet reports assets and claims to assets at a specific point in time is a statement of financial position at a given point in time (Kimmel, Chapter 1, Balance Statement, 2009). The fundamental accounting model is assets equal liabilities plus equity. A company’s assets can be put into two different classes, current assets, and fixed assets. Current assets are assets that quickly and easily can be converted into cash, most of the time it is at a discounted rate from the purchase price. A couple of things are included in current assets such as cash, accounts receivable, securities notes receivable, inventory on hand, and prepaid assets such as pre-paid insurance. A couple of the things are classified as fixed assets include land, buildings, and equipment. Such assets are recorded at historical cost, which means that the value of it is much lower than market value. Liabilities represent the port of the assets that are owned by creditors. Liabilities can be classified as short-term liabilities and...
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...Liabilities: Current liabilities are obligations that the company is to pay within the coming year or its operating cycle, whichever is longer. A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts. b) Long term liabilities: Long term liabilities are obligations that a company expects to pay after one year. In accounting, a section of the balance sheet that lists obligations of the company that become due more than one year into the future. Long-term liabilities include items like debentures, loans, deferred tax liabilities and pension obligations. 3. Owner’s Equity: The ownership claim on total assets is owner’s...
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...Financial Statement Differentiation Paper Jason Rodriguez ACC/561 May 27, 2012 Michael DeMarco CPA Four different types of financial statements are balance sheet, income statement, cash flow, and statements of owners’ equity. These are very important to investor’s creditors and management. It is also important to be accurate with the numbers in these financial statements so you do not get behind and so the company doesn’t get audited. Weygandt, Kimmel, and Keiso state, “Assets, liabilities, expenses, and revenues are of interest to users of accounting Information. This information is arranged in the format of four different financial statement’s, which form the backbone of financial accounting”(2009, p.12 ). It is important to be proficient and knowledgeable of all these statements as a manager. A balance sheet gives a picture of the company’s assets and liabilities. It also gives illustrates the difference between both. Creditors would have significant interest in the balance sheet because it determines if the creditors will be paid back for their investment. Investors will also be interested in the balance sheet. They use it to determine how the stock is doing and what the payouts are so the investors can invest. Finally managers need the balance sheets to see the cost and to see if they have enough money for the company to run. The income statement measures the revenue, expenses, and income over a period of time. It can be quarterly or for the year...
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