1. Welcome to… Principles of Accounting 1 Text book:Fundamentals Accounting Priciples Wild,Larson, Chiapetta Sumia E. Mohieldin smohield@gmail.com Phone #: 17435014

2. Accounting in Business Chapter 1 1

3. Identifies Records Communicates Relevant Reliable Comparable Importance of Accounting Accounting is a system that information that is to help users make better decisions.

4.  Identifying Business Activities  Recording Business Activities  Communicating Business Activities Accounting Activities

5. Users of Accounting Information External Users Lenders Shareholders Governments Consumer Groups External Auditors Customers Internal Users Managers Officers Internal Auditors Sales Staff Budget Officers Controllers

6. Users of Accounting Information External Users Financial accounting provides external users with financial statements. Internal Users Managerial accounting provides information needs for internal decision makers.

7. Beliefs that distinguish right from wrong Accepted standards of good and bad behavior Ethics Ethics—A Key Concept

8.  Identify ethical concerns  Analyze options  Make ethical decision Use personal ethics to recognize ethical concern. Consider all good and bad consequences. Choose best option after weighing all consequences. Guidelines for Ethical Decision Making

9. Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP). Generally Accepted Accounting Principles Relevant Information Affects the decision of its users. Reliable Information Is trusted by users. Comparable Information Is helpful in contrasting organizations.

10. The Securities and Exchange Commission is the government group that establishes reporting requirements for companies that issue stock to the public. Setting Accounting Principles Financial Accounting Standards Board is the private group that sets both broad and specific principles.

11. Principles of Accounting Now Future Going-Concern Principle Reflects assumption that the business will continue operating instead of being closed or sold. Cost Principle Accounting information is based on actual cost. Objectivity Principle Accounting information is supported by independent, unbiased evidence.

12. Principles of Accounting Revenue Recognition Principle 1.Recognize revenue when it is earned. 2.Proceeds need not be in cash. 3.Measure revenue by cash received plus cash value of items received. Monetary Unit Principle Express transactions and events in monetary, or money, units. Business Entity Principle A business is accounted for separately from other business entities, including its owner.

13. Business Entity Forms Proprietorship Partnership Corporation

14. Owners of a corporation are called shareholders (or stockholders). When a corporation issues only one class of stock, we call it common stock (or capital stock). Corporation

15. Assets Liabilities & Equity Accounting Equation Liabilities Equity Assets =+

16. Land Equipment Buildings Cash Vehicles Store Supplies Notes Receivable Accounts Receivable Resources owned or controlled by a company Assets

17. Taxes Payable Wages Payable Notes Payable Accounts Payable Creditors’ claims on assets Liabilities

18. Owner’s claims on assets Owner’s claims on assets Revenues Owner Investments Owner Withdrawals Expenses Equity

19. Liabilities Equity Assets =+ Expanded Accounting Equation Revenues Expenses Owner Capital Owner Withdrawals _ + _

20. The accounting equation must remain in balance after each transaction. Liabilities Equity Assets =+ Transaction Analysis Equation

22. The accounts involved are: (1) Cash (asset) (2) J. Scott, Capital (equity) J. Scott, the owner, contributed $20,000 cash to start the business. Transaction Analysis

23. J. Scott, the owner, contributed $20,000 cash to start the business.

24. The accounts involved are: (1) Cash (asset) (2) Supplies (asset) Transaction Analysis Purchased supplies paying $1,000 cash.

25. Transaction Analysis Purchased supplies paying $1,000 cash.

26. The accounts involved are: (1) Cash (asset) (2) Equipment (asset) Transaction Analysis Purchased equipment for $15,000 cash.

27. Transaction Analysis Purchased equipment for $15,000 cash.

28. The accounts involved are: (1) Supplies (asset) (2) Equipment (asset) (3) Accounts Payable (liability) Transaction Analysis Purchased Supplies of $200 and Equipment of $1,000 on account.

29. Transaction Analysis Purchased Supplies of $200 and Equipment of $1,000 on account.

30. The accounts involved are: (1) Cash (asset) (2) Notes payable (liability) Transaction Analysis Borrowed $4,000 from 1st American Bank.

31. Transaction Analysis Borrowed $4,000 from 1st American Bank.

32. Transaction Analysis The balances so far appear below. Note that the Balance Sheet Equation is still in balance. Now let’s look at transactions involving revenue, expenses and withdrawals.

33. The accounts involved are: (1) Cash (asset) (2) Revenues (equity) Transaction Analysis Rendered consulting services receiving $3,000 cash.

34. Transaction Analysis Rendered consulting services receiving $3,000 cash.

35. The accounts involved are: (1) Cash (asset) (2) Salaries expense (equity) Transaction Analysis Paid salaries of $800 to employees. Remember that the balance in the salaries expense account actually increases. But, equity actually decreases because expenses reduce equity.

36. Transaction Analysis Remember that expenses decrease equity. Paid salaries of $800 to employees.

37. The accounts involved are: (1) Cash (asset) (2) J. Scott, Withdrawals (equity) Transaction Analysis J. Scott withdrew $500 from the business for personal use. Remember that the balance in the J. Scott, Withdrawals account actually increases. But, equity actually decreases because withdrawals reduce equity.

38. Transaction Analysis Remember that withdrawals decrease equity. J. Scott withdrew $500 from the business for personal use.

39. Financial Statements Let’s prepare the Financial Statements reflecting the transactions we have recorded. 1.Income Statement 2.Statement of Owner’s Equity 3.Balance Sheet 4.Statement of Cash Flows

40. Net income is the difference between Revenues and Expenses. The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

41. The net income of $2,200 increases Scott’s capital by $2,200. The Statement of Owner’s Equity explains changes in equity from net income (or net loss) and from owner investments and withdrawals for a period of time.

42. The Balance Sheet describes a company’s financial position at a point in time.

43. The Statement of Cash Flows identifies cash inflows and cash outflows over a period of time.

44. Net income ÷ Average total assets ROA is viewed as an indicator of operating efficiency. Return on Assets (ROA)

45. End of Chapter 1