Financial Information

Many pages in this lesson, and throughout the course, will instruct you to read certain pages from your textbook. The readings will be applicable to the lesson page on which they appear. In this lesson, the concepts from the textbook will be applied to a simple fictional business.

We will use a retail company as an example: Robyn's Retail, Inc. organized as a corporation. When establishing a company, owners choose one of several types. For a discussion of different types of company organization, see Chapter Supplement A on pages 23–24 of your text. The basics of the accounting system are the same for all types of companies, but some of the terminology and specific accounting practices might vary from one type of company to another. In this course, we will focus on corporations. The owners of corporations are called stockholders or shareholders.

Stockholders invested $50,000 for shares of common stock of Robyn's Retail, Inc. She began the business on September 1, 20xx. Robyn used some of the $50,000 to set up a small office and retail store in a rented space.

Think about the financial information Robyn's Retail will generate as it begins operations:

• Stockholders invested $50,000, which created an increase in cash and an increase in stockholders’ equity for that amount.
• Part of that cash was used to purchase supplies and equipment as well as pay in advance for rent and insurance.
• Robyn’s Retail purchased land for future business expansion by borrowing $20,000 from the bank. Interest will need to be paid periodically on this note payable.
• Inventory was purchased from suppliers who expect payment within a specific time period.
• Robyn’s Retail will use advertising to capture new customers.
• Sales will be collected in cash or billed on account.