2. Gerald Trenholm 7 MacCauly Drive Fredericton NB Select economic events (transactions ) Record, classify, and summarize Account ing Reports SOFTBYTE Annual Report Prepare accounting reports Analyse and interpret for users ILLUSTRATION 1-1 THE ACCOUNTING PROCESS 2000

3. ILLUSTRATION 1-2 QUESTIONS ASKED BY INTERNAL USERS Who are the internal users?

4. ILLUSTRATION 1-3 QUESTIONS ASKED BY EXTERNAL USERS Who are the external users? What do we do if they catch us?

5. Accounting 1. 2. Bookkeeping 1. 2. BOOKKEEPING DISTINGUISHED FROM ACCOUNTING

6. THE ACCOUNTING PROFESSION Public accountants offer their expertise to the general public through the services they perform. Private accountants are employees of individual companies and are involved in a number of activities, including cost and tax accounting, systems, and internal auditing. Not-for-profit accounting includes reporting and control for government units, foundations, hospitals, labour unions, colleges/universities, and charities. Three different certifications:

7. ETHICS: Why are ethics crucial in accounting? To Solve Ethical Dilemma 1. Recognize situation and ethical issues involved 2. Identify and analyse elements 3. Identify alternatives and weigh effects on stakeholders Ethics

8. Generally Accepted Accounting Principles Primarily established by the Canadian Institute of Chartered Accountants Cost Principle GAAP

9. Going Concern Monetary Unit Economic Entity ASSUMPTIONS

10. BUSINESS ENTERPRISES A business owned by one person is generally a ______________ (owner’s equity). A business owned by two or more persons associated as partners is a ______________ (partners’ equity). A business organized as a separate legal entity under corporation law and having ownership divided into transferable shares is called a __________ (shareholders’ equity). What is limited liability?

11. ILLUSTRATION 1-5 BASIC ACCOUNTING EQUATION The Basic Accounting Equation

12. ASSETS AS A BUILDING BLOCK Assets

13. LIABILITIES AS A BUILDING BLOCK Liabilities

14. Owner’s Equity = Owner’s Equity represents the ownership claim on total assets. Subdivisions of Owner’s Equity: 1. 2. 3. 4. OWNER’S EQUITY AS A BUILDING BLOCK A BUILDING BLOCK

15. INVESTMENTS BY OWNERS AS A BUILDING BLOCK Investments by owner are the _______ put into the business by the owner. These investments in the business ________ owner’s equity.

16. Drawings are _____________ of cash or other assets by the owner for personal use. Drawings __________ total owner’s equity. What are dividends? How do drawings and dividends affect NI? DRAWINGS AS A BUILDING BLOCK

17. REVENUES AS A BUILDING BLOCK Revenues Revenues may result from Revenues usually result in an ________ in an asset.

18. EXPENSES AS A BUILDING BLOCK Expenses are the __________ in owner’s equity that result from operating the business. Expenses are the cost of assets consumed or services used in the process of earning revenue. Examples of expenses:

19. ILLUSTRATION 1-6 INCREASES AND DECREASES IN OWNER’S EQUITY Investments by Owner Revenues Withdrawals by Owner Expenses INCREASES DECREASES Owner’s Equity

20. REVIEW - TRANSACTION ANALYSIS Marc Doucet decides to open a computer programming service. BANK Softbyt e

21. TRANSACTION ANALYSIS TRANSACTION 1 On September 1, he invests $15,000 cash in the business, which he names Softbyte. Describe the affect on Softbyte accounting equation:

22. TRANSACTION ANALYSIS TRANSACTION 2 Softbyte purchases computer equipment for $7,000 cash. Describe the affect on Softbyte accounting equation:

23. TRANSACTION ANALYSIS TRANSACTION 3 Softbyte purchases computer paper and supplies expected to last several months from Chuah Supply Company for $1,600 on account. Describe the affect on Softbyte accounting equation:

24. TRANSACTION ANALYSIS TRANSACTION 4 Softbyte receives $1,200 cash from customers for programming services it has provided. Describe the affect on Softbyte accounting equation:

25. TRANSACTION ANALYSIS TRANSACTION 5 Softbyte receives a bill for $250 for advertising its business but pays the bill on a later date. Describe the affect on Softbyte accounting equation:

26. TRANSACTION ANALYSIS TRANSACTION 6 Softbyte provides programming services of $3,500 for customers and receives cash of $1,500, with the balance payable on account. Describe the affect on Softbyte accounting equation:

27. TRANSACTION ANALYSIS TRANSACTION 7 Expenses paid in cash for September are store rent, $600, salaries of employees, $900, and utilities, $200. Describe the affect on Softbyte accounting equation:

28. TRANSACTION ANALYSIS TRANSACTION 8 Softbyte pays its advertising bill of $250 in cash. Describe the affect on Softbyte accounting equation:

29. TRANSACTION ANALYSIS TRANSACTION 9 The sum of $600 in cash is received from customers who have previously been billed for services in Transaction 6. Describe the affect on Softbyte accounting equation:

30. TRANSACTION ANALYSIS TRANSACTION 10 Marc Doucet withdraws $1,300 in cash from the business for his personal use. Describe the affect on Softbyte accounting equation:

31. FINANCIAL STATEMENTS After transactions are identified, recorded, and summarized, four financial statements are prepared from the summarized accounting data: 1. An _______________ presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. 2. A ________________________ summarizes the changes in owner’s equity for a specific period of time.

32. FINANCIAL STATEMENTS In addition to the income statement and statement of owner’s equity, two additional statements are prepared: 3. A ___________ reports the assets, liabilities, and owner’s equity of a business enterprise at a specific date. 4. A __________________ summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time. The _____are an integral part of the financial statements.

33. Net income of $2,750 shown on the income statement is added to the beginning balance of owner’s capital in the statement of owner’s equity. ILLUSTRATION 1-10 FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

34. Net income of $2,750 is carried forward from the income statement to the statement of owner’s equity. The owner’s capital of $16,450 at the end of the reporting period is shown as the final total of the owner’s equity column of the Summary of Transactions (Illustration 1-9 in text).

35. ILLUSTRATION 1-10 FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS Owner’s capital of $16,450 at the end of the reporting period – shown in the statement of owner’s equity – is also shown on the balance sheet. Cash of $8,050 on the balance sheet is reported on the cash flow statement.

36. ILLUSTRATION 1-10 FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS Cash of $8,050 on the balance sheet and cash flow statement is shown as the final total of the cash column of the Summary of Transactions (Illustration 1-9 in text).

37. USING THE INFORMATION IN THE FINANCIAL STATEMENTS Annual Reports – Non-financial information – Financial information