Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 1-1 CHAPTER 1 ACCOUNTING IN ACTION Accounting Principles, Eighth Edition.

Similar presentations


Presentation on theme: "Chapter 1-1 CHAPTER 1 ACCOUNTING IN ACTION Accounting Principles, Eighth Edition."— Presentation transcript:

1 Chapter 1-1 CHAPTER 1 ACCOUNTING IN ACTION Accounting Principles, Eighth Edition

2 Chapter Explain what accounting is Identify the users and uses of accounting Understand why ethics is a fundamental business concept Explain generally accepted accounting principles and the cost principle Explain the monetary unit assumption and the economic entity assumption State the accounting equation, and define assets, liabilities, and owners equity Analyze the effects of business transactions on the accounting equation Understand the four financial statements and how they are prepared. Study Objectives

3 Chapter 1-3 Accounting in Action Ethics in financial reporting Generally accepted accounting principles Assumptions What is Accounting? The Building Blocks of Accounting The Basic Accounting Equation Using the Basic Accounting Equation Financial Statements Three activities Who uses accounting data AssetsLiabilities Owners equity Transaction analysis Summary of transactions Income statement Owners equity statement Balance sheet Statement of cash flows

4 Chapter 1-4 What is Accounting? LO 1 Explain what accounting is. The purpose of accounting is to: (1) identifyrecordcommunicate (1) identify, record, and communicate the economic events of an (2) organization to (3) interested users.

5 Chapter 1-5 Three Activities What is Accounting? LO 1 Explain what accounting is. Illustration 1-1 Accounting process The accounting process includes the bookkeeping function.

6 Chapter 1-6 Management There are two broad groups of users of financial information: internal users and external users. Human Resources IRS Labor Unions SEC Marketing Finance Investors Creditors Who Uses Accounting Data? LO 2 Identify the users and uses of accounting. Customers Internal Users External Users

7 Chapter 1-7 Common Questions AskedUser 1. Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? 3. Do we need to borrow in the near future? 4. Is cash sufficient to pay dividends to the stockholders? 5. What price for our product will maximize net income? Who Uses Accounting Data? LO 2 Identify the users and uses of accounting. 6. Will the company be able to pay its short-term debts? Investors Management Finance Marketing Creditors

8 Chapter 1-8 Discussion Question LO 3 Understand why ethics is a fundamental business concept LO 3 Understand why ethics is a fundamental business concept. Q1. Accounting is ingrained in our society and it is vital to our economic system. Do you agree? Explain. See notes page for discussion Who Uses Accounting Data?

9 Chapter 1-9 The Building Blocks of Accounting Ethics In Financial Reporting LO 3 Understand why ethics is a fundamental business concept LO 3 Understand why ethics is a fundamental business concept. Standards of conduct by which ones actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others. Congress passedSarbanes-Oxley Act of Effective financial reporting depends on sound ethical behavior.

10 Chapter 1-10 Various users need financial information The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. Financial Statements Balance Sheet Income Statement Statement of Owners Equity Statement of Cash Flows Note Disclosure Financial Statements Balance Sheet Income Statement Statement of Owners Equity Statement of Cash Flows Note Disclosure Generally Accepted Accounting Principles (GAAP) The Building Blocks of Accounting LO 4 Explain generally accepted accounting principles and the cost principle.

11 Chapter 1-11 Organizations Involved in Standard Setting: Securities and Exchange Commission (SEC) Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) LO 4 Explain generally accepted accounting principles and the cost principle. The Building Blocks of Accounting

12 Chapter 1-12 Cost Principle (Historical) – dictates that companies record assets at their cost. Issues: Reported at cost when purchased and also over the time the asset is held. Cost easily verified, whereas market value is often subjective. Fair value information may be more useful. The Building Blocks of Accounting LO 4 Explain generally accepted accounting principles and the cost principle.

13 Chapter 1-13 Monetary Unit Assumption – include in the accounting records only transaction data that can be expressed in terms of money. Economic Entity Assumption – requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Proprietorship. Partnership. Corporation. AssumptionsAssumptions LO 5 Explain the monetary unit assumption and the economic entity assumption. Forms of Business Ownership

14 Chapter 1-14 ProprietorshipPartnership Corporation Owned by two or more persons. Often retail and service-type businesses Generally unlimited personal liability Partnership agreement Ownership divided into shares of stock Separate legal entity organized under state corporation law Limited liability Forms of Business Ownership Generally owned by one person. Often small service-type businesses Owner receives any profits, suffers any losses, and is personally liable for all debts. LO 5 Explain the monetary unit assumption and the economic entity assumption.

15 Chapter 1-15 AssetsAssetsLiabilitiesLiabilities Owners Equity = + Provides the underlying framework for recording and summarizing economic events. Assets are claimed by either creditors or owners. Claims of creditors must be paid before ownership claims. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owners equity.

16 Chapter 1-16 AssetsAssetsLiabilitiesLiabilities Owners Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owners equity. Resources a business owns. Provide future services or benefits. Cash, Supplies, Equipment, etc. AssetsAssets

17 Chapter 1-17 AssetsAssetsLiabilitiesLiabilities Owners Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owners equity. Claims against assets (debts and obligations). Creditors - party to whom money is owed. Accounts payable, Notes payable, etc. LiabilitiesLiabilities

18 Chapter 1-18 AssetsAssetsLiabilitiesLiabilities Owners Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owners equity. Ownership claim on total assets. Referred to as residual equity. Capital, Drawings, etc. (Proprietorship or Partnership). Owners Equity

19 Chapter 1-19 Owners Equity Revenues result from business activities entered into for the purpose of earning income. Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent. Illustration 1-6 LO 6 State the accounting equation, and define assets, liabilities, and owners equity.

20 Chapter 1-20 Owners Equity Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc. Illustration 1-6 LO 6 State the accounting equation, and define assets, liabilities, and owners equity.

21 Chapter 1-21 Using The Basic Accounting Equation Transactions are a businesss economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the accounting equation. LO 7 Analyze the effects of business transactions on the accounting equation.

22 Chapter 1-22 Q: Q: Are the following events recorded in the accounting records? Event Supplies are purchased on account. Criterion Is the financial position (assets, liabilities, or owners equity) of the company changed? LO 7 Analyze the effects of business transactions on the accounting equation. An employee is hired. Owner withdraws cash for personal use. Record/ Dont Record Transactions (Question?)

23 Chapter 1-23 Discussion Question Q. In February 2008, Paula King invested an additional $10,000 in her business, Kings Pharmacy, which is organized as a proprietorship. Kings accountant, Lance Jones, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate? Why or why not? See notes page for discussion TransactionsTransactions LO 7 Analyze the effects of business transactions on the accounting equation.

24 Chapter 1-24 P1-1A: P1-1A: Barones Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis of the following transactions for the month of May. Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable Barone, Capital LO 7 Analyze the effects of business transactions on the accounting equation. ++=+ 1. Invested $10,000 cash to start the repair shop. Investment Assets LiabilitiesEquity

25 Chapter 1-25 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable Barone, Capital LO 7 Analyze the effects of business transactions on the accounting equation. 2. Purchased equipment for $5,000 cash. -5, ,000 ++=+ Investment Assets LiabilitiesEquity

26 Chapter 1-26 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 3. Paid $400 cash for May office rent. -5, ,000 ++= Expense Barone, Capital Investment Assets LiabilitiesEquity

27 Chapter 1-27 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 4. Received $5,100 from customers for repair service. -5, ,000 ++= Expense +5, ,100 Revenue Barone, Capital Investment Assets LiabilitiesEquity

28 Chapter 1-28 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 5. Withdrew $1,000 cash for personal use. -5, ,000 ++= Expense +5, ,100 Revenue -1, ,000 Drawings Barone, Capital Investment Assets LiabilitiesEquity

29 Chapter 1-29 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 6. Paid part-time employee salaries of $2, , ,000 ++= Expense +5, ,100 Revenue -1, ,000 Drawings -2, ,000 Expense Barone, Capital Investment Assets LiabilitiesEquity

30 Chapter 1-30 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 7. Incurred $250 of advertising costs, on account. -5, ,000 ++= Expense +5, ,100 Revenue -1, ,000 Drawings -2, ,000 Expense Expense Barone, Capital Investment Assets LiabilitiesEquity

31 Chapter 1-31 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 8. Provided $750 of repair services on account. -5, ,000 ++= Expense +5, ,100 Revenue -1, ,000 Drawings -2, ,000 Expense Expense Revenue Barone, Capital Investment Assets LiabilitiesEquity

32 Chapter 1-32 Transactions (Problem) +10, ,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 9. Collected $120 cash for services previously billed. -5, ,000 ++= Expense +5, ,100 Revenue -1, ,000 Drawings -2, ,000 Expense Expense Revenue Barone, Capital Investment Assets LiabilitiesEquity 6, ,000 = ,200

33 Chapter 1-33 Companies prepare four financial statements from the summarized accounting data: Balance Sheet Income Statement Statement of Cash Flows Owners Equity Statement Financial Statements LO 8 Understand the four financial statements and how they are prepared.

34 Chapter 1-34 Income Statement Financial Statements LO 8 Understand the four financial statements and how they are prepared. Reports the revenues and expenses for a specific period of time. Net income – revenues exceed expenses. Net loss – expenses exceed revenues.

35 Chapter 1-35 Income Statement Financial Statements LO 8 Understand the four financial statements and how they are prepared. Owners Equity Statement Net income is needed to determine the ending balance in owners equity.

36 Chapter 1-36 Financial Statements LO 8 Understand the four financial statements and how they are prepared. Owners Equity Statement Statement indicates the reasons why owners equity has increased or decreased during the period.

37 Chapter 1-37 Financial Statements LO 8 Understand the four financial statements and how they are prepared. Owners Equity Statement The ending balance in owners equity is needed in preparing the balance sheet Balance Sheet

38 Chapter 1-38 Balance Sheet Financial Statements LO 8 Understand the four financial statements and how they are prepared. Reports the assets, liabilities, and owners equity at a specific date. Assets listed at the top, followed by liabilities and owners equity. Total assets must equal total liabilities and owners equity.

39 Chapter 1-39 Balance Sheet Financial Statements LO 8 Understand the four financial statements and how they are prepared. Statement of Cash Flows

40 Chapter 1-40 Financial Statements LO 8 Understand the four financial statements and how they are prepared. Statement of Cash Flows Information for a specific period of time. Answers the following: 1. Where did cash come from? 2. What was cash used for? 3. What was the change in the cash balance?

41 Chapter 1-41 Forensic Accounting Careers with insurance companies and law offices to conduct investigations into theft and fraud. Opportunities in Government Careers with the IRS, the FBI, the SEC, and in public colleges and universities. Private Accounting Careers in industry working in cost accounting, budgeting, accounting information systems, and taxation. LO 9 Explain the career opportunities in accounting. Accounting Career Opportunities Public Accounting Careers in auditing and taxation serving the general public.


Download ppt "Chapter 1-1 CHAPTER 1 ACCOUNTING IN ACTION Accounting Principles, Eighth Edition."

Similar presentations


Ads by Google