Accounting

Measurement Triggering Transactions and Events

Economists often refer to income as a measure of better-offenses. In other words, economic income represents an increase in the command over goods and services. Such notions of income capture a business’s operating successes, as well as a good fortune from holding assets that may increase in value.

The Meaning of Accounting Income

Preparing Financial Statements

In the previous chapter, you learned all about adjustments that might be needed at the end of each accounting period. These adjustments were necessary to bring a company’s books and records currently in anticipation of calculating and reporting its income and financial position.

However, Information Processing did not illustrate how those adjustments would be used to actually prepare the financial statements. This chapter will begin with that task.

Current Liabilities

The current liabilities section of the balance sheet contains obligations that are due to be satisfied in the near term, and includes amounts relating to accounts payable, salaries, utilities, taxes, short-term loans, and so forth. This casual description is inadequate for all situations, so accountants have developed a very specific definition to deal with more issues.

Long-Term Notes

The previous post Current Liabilities and Employer Obligations illustrations of notes were based on the assumption that the notes were of fairly short duration. Now, let’s turn our attention to longer term notes. A borrower may desire a longer term for their loan. It would not be uncommon to find two, three, five-year, and even longer term notes. These notes may evidence a “term loan,” where “interest only” is paid during the period of borrowing and the balance of the note is due at maturity.

The entries are virtually the same as you saw in the previous chapter. As a refresher, assume that Wilson issued a five-year, 8% term note – with interest paid annually on September 30 of each year:

The Corporate Form of Organization

Corporations are separate legal entities having existence separate and distinct from their owners (i.e., stockholders). In essence, they are artificial beings existing only in contemplation of law. In the United States, a corporation is typically created when one or more individuals file “articles of incorporation” with a Secretary of State in the particular home state in which they choose to become domiciled.

The articles of incorporation will generally specify a number of important features about the purpose of the corporate entity and how general governance of ongoing operations will be structured. After reviewing the articles of incorporation, the Secretary of State will issue a charter (or certificate of incorporation) authorizing the corporate entity to “come into being.”

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