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Accounting for Lawyers
St. Johns University School of Law
Pilato, Biagio

Accounting for Lawyers
Forms of Business Organizations
Sole Proprietorship
Owned by one person
Simple to set up
Gives you control over the business
Favorable tax treatment
Personally liable for all debts and legal obligations
Business owned by two or more persons associated as partners
Formed if one individual does not have enough economic resources
Partners bring unique skills or resources to partnership
Favorable tax treatment
Personally liable for all debts and legal obligations
Separate legal entity owned by stockholders
Investors receive shares of stock to indicate ownership claim
Easier transfer of ownership
More attractive than p/ship because stock is easy to sell
Easier for corp. to raise funds because investors invest relatively small amounts of money to become SH
Pay higher taxes
Not personally liable for debts or legal obligations
Users and Uses of Financial Information
Accounting is the info system that identifies, records, and communicates the economic events of an organization to interested users
Internal Users
Managers who plan, organize, and run a business
Marketing managers, production supervisors, finance directors, and company officers
Consider whether cash is sufficient to pay dividends to SH, what price co. should charge for a product to maximize net income, whether company can afford to give employees pay raises, etc.
External Users
Use info to make decisions to buy, hold, or sell stock
Suppliers and bankers use info to evaluate risks of selling on credit or lending money
Consider whether company earned satisfactory income, consider how companies compare in size and profitability to one another, etc.
Ethics and Financial Reporting
Congress passed Sarbanes-Oxley Act to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals
Top management must certify accuracy of financial information
Increased independence of outside auditors who review the accuracy of corporate financial statements and the oversight role of boards of directors
Types of Business Activities
Operating Activities
Revenues – amounts earned from service or sale of products
Interest revenue on debt securities held as investments, sales revenue, services revenue
Assets with shorter lives
Supplies, inventory
Accounts receivable (Revenue Recognition)
Expenses – necessary to produce and sell a product/service
Costs – salaries, rents, utilities, materials
Cost of goods sold, selling expenses, marketing expenses, administrative expenses, interest expense, income expenses (ex. Corporate taxes paid to gov.)
Liabilities arising

receipts and cash payments of a business for a specific period of time for operating, investing, and financing activities
Shows net increase or decrease in cash during the period, and amount of cash at the end of the period
Other Elements of an Annual Report
Narrative that presents management’s views on the company’s ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operation
Must highlight favorable or unfavorable trends and identify significant events and uncertainties
Notes to the Financial Statements
Explanatory notes which clarify the financial statements and provide additional detail
Ex. Descriptions of the significant accounting policies and methods used in preparing the statements, explanations of uncertainties and contingencies, and various statistics and details too voluminous to be included in the statements
Independent Auditor’s Report
States the auditor’s unqualified opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with GAAP